LONDON: Oil prices fell towards six-year lows on Monday on data showing the economy of Japan, the world's third-biggest oil consumer, contracted in the second quarter.
The global oversupply picture was exacerbated by another weekly jump in U.S. oil rig additions on Friday, hinting at growing production, and news that Oman produced a record-breaking 1 million barrels per day in July.
U.S. crude, or West Texas Intermediate (WTI), for September was trading 45 cents lower at $42.05 a barrel at 1348 GMT, close to its lowest in more than six years.
Brent futures for October briefly reached an intraday high of $49.44 a barrel on news that Kuwait's 200,000-barrels-per-day Shuaiba refinery had shut following a fire. The contract traded just below Friday's close by 1355 GMT at $49.18 a barrel. The Brent September contract expired on Friday.
Over the past two weeks, U.S. crude prices have fallen by more than 10 percent on U.S. supply concerns. Brent has fallen by around 4 percent.
"We have seen Brent swing up and down over the past two weeks because of a lack of consensus about where oil should go directionally," BNP Paribas energy commodities strategist Gareth Lewis-Davies said.
Production by the Organization of the Petroleum Exporting Countries is running well above demand, filling stockpiles worldwide.
Iran is expected to increase its oil exports once Western sanctions are lifted after ratification of a recent nuclear deal.
"The oversupply story remains well intact, which fuels the bearish sentiment," said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt.
Adding to the negative picture was data showing Japan's economy shrank at an annualised pace of 1.6 percent in April-June as exports slumped and consumers cut back spending.
Many money managers and hedge funds agree that oil prices will likely remain low for a while as they cut net long positions of Brent futures for a fourth straight week to the lowest since December 2014, Intercontinental Exchange data showed.
"The end of the summer driving season and the start of refinery maintenance season will weigh on near-term demand and pressure prices," said Societe Generale oil analyst Michael Wittner.
"Oversupply, high stocks, and seasonal weaknesses are outweighing record demand growth," he said.
Demand for crude is set to fall in the next few weeks as refineries start annual maintenance. A number of European refineries will close for work in September and October, including facilities operated by Royal Dutch Shell, Statoil and Total.
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