Singapore: Oil stayed in the red on Monday on supply concerns despite partly recovering from earlier losses after a private business survey showed an improvement in China's manufacturing sector in February.
Brent and US crude futures fell about 1 percent early on Monday, after their first monthly rise since June, as surplus oil supply outweighed Beijing's efforts to support the world's second-largest economy.
"The key drivers over the next few months are going to come from supply dynamics more than demand dynamics," said Ric Spooner, chief analyst at CMC Markets in Sydney.
"The market is moving into a holding pattern while waiting to see more evidence that production is going to be reduced."
Brent, US crude down
Brent crude was down 38 cents at $62.20 a barrel by 0645 GMT after an 18 percent gain in February, the largest monthly rise since May 2009. US crude dropped 38 cents to $49.38 a barrel after rising 3 percent in February.
Manufacturing activity in China edged up to a seven-month high in February, HSBC's survey showed. On Saturday, the Chinese central bank cut key interest rates to support its economy.
"That should see a little bit more risk appetite coming back into the market over the next couple of hours," said Ben Le Brun, a market analyst at OptionsXpress in Sydney.
"We've seen a bottom and it's just how much prices will run up." Analysts said in a Reuters survey that oil prices have probably touched a bottom and should recover in the second half of 2015 as the collapse in the market over the last year begins to curb production.
Iraq's oil minister, Adel Abdel Mehdi, said on Sunday he expected to see a barrel of crude selling at around $65.
Supply disruption among members of the Organization of the Petroleum Exporting Countries (OPEC) in February also supported Brent, stretching its premium over US crude to the widest since January 2014 on Friday at $13 a barrel.
The spread narrowed on Monday following a recovery in Libya's oil production to more than 400,000 barrels per day (bpd).
Still, technical charts pointed to a further widening of the spread to $16.98 in the next three months, Reuters market analyst Wang Tao said.
A rebound in prices in February may have slowed production cuts in the United States. The number of oil rigs fell 33 last week to 986, the smallest drop since the beginning of the year, a survey showed.
India's Iran oil imports fall to lowest since July 2013
India slashed its Iranian oil imports in February to a 1-1/2-year low to keep annual volumes from Tehran near the previous fiscal year's levels and within the limits allowed under a deal aimed at curtailing the OPEC nation's nuclear programme.
India, Iran's top client after China, shipped in about 102,200 barrels per day (bpd) of crude and condensate from Tehran in February, the lowest since July 2013, and down 63 percent from January and 62 percent from a year ago, according to tanker arrival data from trade sources and ship tracking services on the Thomson Reuters terminal.
The cuts follow smaller but still sharp reductions in January. The two months of lower shipments came after New Delhi instructed Mangalore Refinery and Petrochemicals Ltd, Essar Oil and Indian Oil Corp to "virtually halt" Iranian oil imports in February-March.
Refiners in India had raised imports during April-December - the first nine months of this fiscal year - by more than 40 percent, leading U.S. authorities to raise an alarm with India's foreign ministry ahead of President Barack Obama's visit to New Delhi in January, a source involved in the talks said.
New Delhi wants to keep its average oil imports from Iran at 210,000-220,000 bpd or about 11 million tonnes in the year to March 31, 2015, to meet the terms of a temporary deal that asks buyer nations to retain purchases from Tehran at 2013 levels.
The deal brokered by six world powers and Iran in November 2013 eased some sanctions on Tehran in exchange for curbs to the Islamic republic's nuclear programme, capping its oil exports at around 1 million-1.1 million bpd.
The powers - the United States, Russia, China, Britain, France and Germany - are now working with Iran towards a final agreement on sanctions and its disputed uranium enrichment activities, aiming to reach a political understanding by the end of March and a lasting agreement by a June 30 deadline. Two earlier deadlines have been missed.
The West is worried that Iran's nuclear activities are aimed at making a weapon. Tehran says its uranium enrichment programme is only for power generation.
Over April-February India's oil imports from Iran averaged/sabout 240,000 bpd, or nearly 11 million tonnes, leaving little room for further imports in March.
The April-February imports from Iran were up 16 percent compared with 206,800 bpd imported in the same period of the previous fiscal year, the data showed.
"So far there are no cargoes booked from Iran or Dalian in China for voyage to India (for March arrivals)," a trade source said. Iran has leased oil storage at Dalian in China from which it can supply regional clients.
MRPL had to buy additional oil from Kuwait and Saudi Arabia for February and March to make up for the reduced Iranian oil imports, said an industry source.
MRPL has also booked Iraq's Basra light for March loading from spot markets to replace crude from Iran.
MRPL's managing director H. Kumar declined to comment on any additional purchases from Kuwait and Saudi Arabia.