Crude oil futures reversed earlier gains on Friday as weak fundamentals weighed on markets at the end of a volatile week that saw prices seesaw over 10 per cent within a day.
International benchmark Brent crude futures were trading at $34.08 per barrel at 0805 GMT, down 38 cents from their last settlement, while US West Texas Intermediate (WTI) crude futures were down 25 cents at 31.47 a barrel.
Traders said liquidity had been low during Asian business hours due to the Lunar New Year holiday which will last for most of next week.
Oil prices have been extremely volatile since the start of the year, and in particular this week, as a string of bullish indicators like a slump in the dollar and potential talks on output cuts clashed with bearish reports of record US crude inventories, higher output and a slowing global economy.
Investment bank Jefferies said on Friday that US crude prices had traded within a 19 per cent band over last week and with inter-day moves approaching 11 per cent.
"We expect that volatility could remain elevated especially on upward moves from short covering; net length in WTI is at its lowest level since 08/01/2013 implying a large short position," Jefferies said.
BMI Research, a unit of rating agency Fitch Group, said that "bloated crude inventories in the US pose rising risk to WTI" and that "a continued build in storage over the coming six to eight weeks could collapse the price of WTI, driving a sharp reopening of the spread to Brent''.
US crude inventories climbed 7.8 million barrels in the week to January 29 to 502.7 million barrels. Gasoline inventories rose to a record high, soaring 5.9 million barrels to 254.4 million barrels.
Brimming storage is contributing to an overall bearish market outlook as long as major producers don't reach an agreement on output, with China's economic slowdown now showing signs of spreading across the world.
"It's not exactly rosy out there.. Shipments to China are down... Most worrying for anyone hoping for a lift is that US purchases have dipped again, with lacklustre capex partly to blame," HSBC said.
Morgan Stanley said on Friday that rebalancing of oil markets would take time, keeping prices low until the second quarter of 2017 at least.