Oil prices dipped on Thursday after US crude hit 2016 highs the day before and Brent shot back over $40 per barrel, with analysts warning that larger gains would be unwarranted as a global glut continues to outweigh strong demand.
Expectations of more stimulus from the European Central Bank (ECB) this week, which would strengthen the dollar against the euro and potentially hamper dollar-traded oil imports, also weighed on markets, analysts said.
"The ECB will cut deposit rates by 20 bps (basis points) and extend its bond buying program by one year. This could be bullish for the dollar and bearish for oil," French bank Societe Generale said.
"Moreover, recent price gains are somewhat tenuous, because they've been driven by market sentiment, which can change quickly, and by supply disruptions, which are temporary," it added.
Brent crude futures were at $40.88 per barrel at 0339 GMT, down 19 cents from their last close.
US crude was down 8 cents at $38.21 per barrel.
The dips came after prices rose as much as 5 per cent on Wednesday, with US crude hitting three-month highs following a big gasoline inventory drawdown, which overshadowed record-high crude stockpiles.
But analysts warned that a global crude production overhang of over 1 million barrels per day (bpd) showed few signs of abating.
With US crude inventories at records despite strong demand, the focus lies on a potential agreement between producers from the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and non-OPEC exporters led by Russia to rein in output.
Yet beyond announcing talks about freezing output near record levels, no agreement has been reached.
Barclays said there was no talk of a production cut during a research trip to Saudi Arabia and that the country's goal was to maintain current production levels around 10.2 million bpd over the next five years.
Most analysts expect the oil glut to last into 2017 or even 2018, resulting in low prices.
Only by 2020 is there a consensus for prices to rise towards $70 a barrel, based on low investment into production and strong demand, especially from China and other emerging markets.
But Deutsche Bank said that China might see slowing fuel demand growth from the 2020s.
"Chinese oil demand growth, the largest single contributor to world oil demand growth, may begin to flatten more quickly than some long-term projections indicate," the bank said.
"This could result in world oil demand growth falling from its 2000-2016 trend of 1.1 million bpd year-on-year to only 800,000 bpd ... by 2024."
A slowdown in China's oil demand would have significant impact on crude prices as it has accounted for 37.5 per cent of world oil demand growth since 2010, Deutsche said.