International benchmark Brent crude futures managed to defend $40 per barrel in early trading on Tuesday, standing at $40.51 at 0154 GMT, down 33 cents from their last settlement. On Monday, the contract had surged over 5.5 percent in intra-day trading and remains 50 percent above 2016 lows from Jan. 20
SINGAPORE: Oil prices fell over 1 percent on Tuesday, with Goldman Sachs warning that August's price rally had been overdone and that a proposed oil production freeze at current near-record levels would not help rein in an oversupplied market.
International Brent crude oil futures were trading at $48.54 per barrel at 0235 GMT, down 62 cents, or 1.26 percent, from their last close.
U.S. West Texas Intermediate (WTI) crude was down 76 cents, or 1.6 percent, at $46.65 per barrel.
Analysts said the falls were a result of an overdone price rally this month which lifted crude by over 20 percent between the beginning of the month and late last week.
Since then, prices have fallen back by more than 3.5 percent.
"While oil prices have rebounded sharply since Aug. 1, we believe this move has not been driven by incrementally better oil fundamentals, but instead by headlines around a potential output freeze as well as a sharp weakening of the dollar (and exacerbated by a sharp reversal in net speculative positions)," Goldman Sachs said.
The bank said a proposal by members of the Organization of the Petroleum Exporting Countries (OPEC) and other producers like Russia to freeze output at current levels "would leave production at record highs" and therefore do little to bring supply and demand back into balance.
Goldman also said the likelihood of a deal "may not be high" due to disputes between OPEC members Saudi Arabia and Iran as well as uncertainty over non-OPEC producing giant Russia's willingness to cooperate.
The bank said it expected crude oil prices of between $45 and $50 per barrel "through next summer", but warned that "a sustainable pick-up in disrupted production would lead us to lower our oil price forecast with WTI prices ... to average $45 per barrel".
French bank BNP Paribas said that "the narrative of a rapid re-balancing of the oil market has ... met a few stumbling blocks" as "some of Q2's disrupted supply returned, OPEC's collective output rose, and U.S. shale oil is being spared the dramatic year-on-year declines forecast earlier in the year". - Reuters
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