Oil prices dipped in early Asian trade on Monday after much of the region returned from the Lunar New Year holiday, with Brent futures testing support around $ 60 a barrel and US contracts hovering around $ 50.50.

Following a steep fall from June 2014 to six-year lows, oil prices have recovered around a third of their value since mid-January, with benchmark Brent contracts jumping almost $ 20 a barrel to $ 63 a barrel last week as traders closed long-standing short positions in reaction to a falling US rig count.

Yet many analysts said the price rise was overblown as record US inventories and slowing demand around the world left oil markets oversupplied.

“US crude oil prices slipped, as markets finally digested another rise in US crude inventories, which offset another week of oil rig count declines,” ANZ bank said on Monday.

Benchmark Brent crude futures LCOc1 were trading at $ 60.07. at 0100 GMT, down 10 cents from their last settlement, while US WTI crude CLc1 was down 20 cents at $ 50.61 a barrel.

Although both US WTI and international Brent prices dipped in the past week, American contracts have fallen more sharply largely in response to the record inventories.

This has pulled WTI’s discount on Brent to over $ 9.50 a barrel, up from parity and even a short-lived premium late last year.

Yet analysts said they expected US prices to recover later this year, once the falling rig count translates into lower output.

“Lower US drilling activity will impact US production later this year,” BNP Paribas said in a note over the weekend.

“While the supply loss will be limited, it will occur at a time when global oil fundamentals are becoming far more balanced, and will contribute to improved price sentiment in 2H15.”

Although most of the region is back from the Lunar New Year, markets in mainland China do not reopen until Wednesday.

– Reuters