By Devika Krishna Kumar
NEW YORK (Reuters) - Oil prices fell as much as 5 percent on Monday, wiping out some of the surge at the end of last week, as investors' focus returned to the market's oversupply amid news that Iraq's output reached a record last month.
U.S. crude had traded $1.52 lower to $30.67 a barrel, a loss of 4.7 percent, by 12:30 p.m. EST (1730 GMT.)
Brent crude, the global benchmark, was $1.28 weaker at $30.90 a barrel, 4 percent below its closing price on Friday, when Brent surged 10 percent.
The biggest two-day rally since 2008 on Thursday and Friday helped put a stop to what analysts called an "irrational" sell-off that had sent oil prices crashing over 20 percent in January.
Brent hit a 12-year low of $27.10 on Jan. 20, before the two-day rally, while U.S. futures hit a 13-year low of $26.19, below the pivotal $30 levels.
The 15-percent rebound came as traders raced to close out short positions and a monster blizzard moved toward the U.S. East Coast. It was nearly the largest ever two-day rally, while the renewed selling on Monday added to oil market volatility.
"Friday's advance was an overreaction to the storm," said Jim Ritterbusch of Chicago-based oil consultancy Ritterbusch & Associates.
Ritterbusch said the reversal on Monday comes as "the market is forced to refocus on various fundamentals that are set to become even more negative."
Iraq's oil ministry told Reuters on Monday that the country had record output in December, with its fields in the central and southern regions producing as much as 4.13 million barrels a day. A senior Iraqi oil official said separately the country may raise output even further this year.
"The news that Iraq has probably hit another record builds on the oversupply sentiment," said Hans van Cleef, senior energy economist at ABN Amro in Amsterdam.
"The oversupply will keep markets depressed and prices low, and on the other hand short positions are in excessive territory," he said.
Oil prices came under more selling pressure after Standard Chartered (L:STAN) said it expects oil prices to remain volatile for the rest of the first quarter, noting "the underlying negative sentiment in the market seems little changed."
HSBC and UniCredit slashed their oil price forecasts for 2016 on Monday, joining several brokerages and banks that have also scaled back their outlooks due to the excess supply in the market.
Yet, some analysts, including Standard Chartered, expect oil prices to stabilize by the end of 2016.
OPEC's Secretary-General Abdullah al-Badri said at an event in London that signs were already emerging that the market was rebalancing.
Analysts at Energy Aspects said Monday that global oil inventories would continue to grow in the coming months, but should start to ease by mid-year.