Oil prices fall as clouds gather over supply picture

Oil prices fell for a second day on Tuesday, as concerns took hold that a six-week rally may have run its course after OPEC doused hopes for a speedy erosion of an overhang of unwanted crude.

The Organization of the Petroleum Exporting Countries said on Monday demand for its crude would be less than previously thought in 2016 as supply from rivals proves more resilient to low prices, increasing excess supply in the market.

To tackle the surplus, Saudi Arabia and non-OPEC member Russia, the world's two largest oil exporters, along with Qatar and Venezuela have proposed major producers freeze output at January levels.

Even with the proposed freeze, continuously high production means global output still exceeds demand by at least 1 million barrels per day (bpd).

"We ran into $40 a barrel ... the idea OPEC was going to be able to at least freeze production and was along the right tracks has unraveled a bit," CMC Markets strategist Jasper Lawler said.

Brent crude futures LCOc1 were down $1.17 at $38.36 a barrel by 0943 GMT, while U.S. crude futures CLc1 were 82 cents lower at $36.36.

While Russian and Saudi production remains stable, analysts say Iran has trebled its output to around 3.1 million bpd, from close to 1 million bpd in January.

Oil demand could also slow. Morgan Stanley said there was a 30 percent probability of a global recession this year.

In spite of uncertainty about whether a production freeze will occur, and over its effectiveness given concerns about the global economy, investors have turned more friendly towards oil.

Speculators have added to their bets on a sustained rise in crude futures and the ratio of bullish bets to bearish in the Brent market has risen to its highest since last May, consultancy JBC Energy said.