Oil prices, down about 30 percent since March, will likely stay under pressure for now based on record global production and softer demand.
West Texas intermediate (New York Mercantile Exchange: clcv1) was trading higher Friday, bouncing more than a percent off its Thursday close of $78.20 per barrel. Brent (Intercontinental Exchange Europe: LCOCV1), the international benchmark, rose back above $90 per barrel Friday.
Despite the blip, though, analysts see oil headed further down.
The reason? The world is now pumping 91.1 million barrels per day, the most ever. At the same time, global demand in May was 89.9 million barrels per day, the International Energy Administration reported.
OPEC production, at more than 31.5 million barrels in May, was also higher than normal, though OPEC last week vowed to maintain its production at 30 million barrels per day.
Crude, like stocks and other risk assets, was part of a turbulent sell off Thursday as fears of slowing global growth gripped markets, which were also beset by speculation about pending bank downgrades and Europe's sovereign crisis.
John Kilduff of Again Capital said after oil sinks through $78, the next level he is watching is $72 per barrel for WTI. Oil fell this week after the Federal Reserve held off a return to its quantitative easing program, seen as a catalyst for commodities and stock prices.
"If the central banks stay put, they may see that oil is helping them out. $68 is not unconceivable," Kilduff said.
"I think the slide is going to begin to tail a little. I wouldn't be surprised to see some profit-taking rebounds. The direction for the market tends to be lower, and until we get some better economic conditions, the market is hunting for a bottom," said Gene McGillian, Tradition Energy.
McGillian said the market is heading to the lows of last year, around $75 per barrel for WTI. Brent, already at an 18-month low, could move as low as $80 per barrel.
"I think a lot of the economic worries have been priced in for the moment and the market's catching its collective breath right now," he said.
Citigroup's Ed Morse, who heads commodities research, doesn't expect oil to keep falling for long, but he doesn't expect it to get back to its year highs soon either. "We think there's no reason for a sustained price recovery for Brent above $100 or WTI above $85 through the second half of the year," he said.
But risks return next week when there's a new batch of U.S. data, and the EU leaders meet at the end of the week on the sovereign debt crisis.
The increased production is the result of more oil coming from Saudi Arabia, as that country responded to sanctions against Iran, and increased output from Iraq and Libya. There is also a new flood of crude being produced in North America.
"We're (the U.S.) probably close to 6.4 million barrels a day, the highest in 13 years," said Andrew Lipow, president of Lipow Oil Associates. "My unofficial estimate compared to last June, is we're probably up 800,000 barrels, and that is about a 14 percent increase year-over-year. It's huge, and it's being led by North Dakota and Texas. It's just unbelievable."
The unexpected supply increase also collides with a softening in demand. "We're producing about a million barrels a day more than we're consuming. That's starting to be a lot," said Kilduff.
"This is somewhat unexpected. I think that demand had been seen for a long time as being insatiable, and clearly now we've gotten ahead of it on the supply curve and the market's having to grapple with it," he said.
The IEA this month said the market is not oversupplied, just "better" supplied. It maintains its view that demand growth will be 0.8 million barrels per day in 2012, but it says slower GDP growth could threaten that expectation. It also warned that sanctions on Iran oil exports could push prices higher again, and that demand should pick up from power suppliers and others.
IHS CERA Chairman Daniel Yergin, speaking by phone from the St. Petersburg International Economic Forum, said the higher OPEC production level made sense just several months ago, when speculation around the Iranian reaction to sanctions sent prices higher.
"It was a quite remarkable period when you go back four months ago. Oil prices got as high as $128 and people were talking about $160, and now it's at $90," he said.
"It shows three things: the relentless increase in supply, particularly led by the Saudis, who have been producing very steadily at high volumes since last year and the beginning of this year. Secondly, it reflects the growth of oil from countries as diverse as Iraq and the United states," said Yergin.
"The supply situation is very different than it was three months ago when Iran was threatening to close the Strait of Hormuz, and the other thing is the bad economic news and weak demand," he added.
The U.S. has restricted dealings with the Iranian central bank, and Europe has sanctioned Iranian oil starting at end of this month
Yergin said some of the Iranian oil has already been taken out of the market and the drop in oil prices is also pinching Iran, which has been engaged in talks with a group of six nations on its nuclear program.
So far, Iran refuses to abandon its uranium enrichment program, denying it is seeking to develop nuclear weapons.
The Iran situation remains a wild card for oil prices. The IEA also reported that preliminary data indicates imports of Iranian crude by major consumers had fallen by 1 million barrels per day in April and May from levels seen last year.
Follow Patti Domm on Twitter: @pattidommQuestions? Comments? Email us at email@example.com
More From CNBC