Oil prices extend gains, but traders warn of weakness ahead

By Libby George

LONDON (Reuters) - Oil rose further on Monday after a report of renewed calls by some OPEC members to restrain output, but analysts warned the bearish fundamentals that brought prices to four-month lows last week still lurked.

International benchmark Brent futures were trading at $45.17 per barrel at 1404 GMT, up 90 cents, or 2.03 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $42.78 per barrel, up 98 cents, or 2.34 percent.

The rise extended gains from a technical rally last week and came on the back of nascent optimism over an informal September meeting of the Organization of the Petroleum Exporting Countries (OPEC).

Those hopeful for rebalancing pointed to reports late last week from the Wall Street Journal about fresh calls by some OPEC members to freeze production levels in a bid to rein in output.

Qatar's energy minister said on Monday that the oil market is on a path to rebalancing.

Still, Russia, the world's top oil producer and a non-OPEC member, was quick to dismiss appeals for a freeze. Energy Minister Alexander Novak told reporters that "the prerequisites for this have not yet come to pass".

Analysts and traders said the gains would probably be short-lived due to the unlikelihood of substantial OPEC action, as well as to a glut of crude and refined products looming over the market.

"They're posed from a technical and a fundamental point of view to make a move down," Hamza Khan, head of commodity strategy at ING, said of oil prices. "It's difficult to see how the rally can be sustained."

Investors are increasing their bets against rising oil prices. Hedge funds cut their net longs on Brent crude to their lowest since January, while investors are holding their smallest bullish exposure to U.S. crude oil since February.

In China, July fuel exports rose over 50 percent from a year earlier to a monthly record 4.57 million tonnes, official data showed, as easing demand growth and a surplus in refined products pushed refiners to increase shipments overseas.

Additionally, the number of oil rigs drilling in the United States rose for the sixth consecutive week to 381.

The combination of factors led analysts to warn that the world had not yet dealt with the overhang of physical oil, which could drag prices lower again before any sustained recovery.

"The proper signals are not yet being sent to fix the product market," Morgan Stanley said in a note, adding that refined products also needed to draw down a large excess.

"In other words, physical oil markets likely need to get worse before they get better."

(Additional reporting by Henning Gloystein in Singapore; editing by Dale Hudson/Mark Heinrich)