By Jacob Gronholt-Pedersen
SINGAPORE (Reuters) - Oil prices edged up on Friday after closing at their lowest in months in the previous session as oversupply and disappointing Chinese factory activity dragged on the market.
Oil prices in the United States have slumped more than 20 percent in the past six weeks, a slide considered by many traders to constitute a bear market.
The oil demand outlook dimmed further on Friday after a preliminary private survey showed factory activity in China's struggling economy contracted by the most in 15 months in July.
"Concerns around the demand environment were heightened further today by the PMI (Purchasing Managers' Index) read out of China," said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
"The lack of supply side response means that the downtrend looks to be firmly entrenched, and there seems to be little opportunity for a turnaround in the near term," he said.
U.S. crude for September delivery traded 25 cents higher at $48.70 a barrel by 0651 GMT, after closing down 74 cents at $48.45, the lowest settlement since March 31.
McCarthy sees potential for U.S. oil to drop to levels last seen in March at around $42 a barrel. If it breaks through that mark, it could fall to the mid-$30s, he said.
Brent September crude was up 7 cents at $55.34 a barrel. The contract had settled at its lowest since early April at $55.27, down 86 cents.
Both benchmarks are on track to post double-digit losses this month, in part pulled lower by expectations of higher Iranian exports following a deal over its nuclear programme with world powers.
U.S. crude is down some 18 percent so far this month and Brent is down 13 percent.
Oil prices found some support from a weakening dollar, which makes it cheaper for holders of other currencies to buy dollar-denominated commodities.
Oil prices could find additional support if the world's top exporter Saudi Arabia cuts production after the summer in reaction to lower seasonal domestic demand, as stated in a report by an industry publication on Thursday.
With a dim outlook for oil prices, the world's top oil companies could be forced into more spending cuts, as they are set to report yet another sharp drop in quarterly profits, according to analysts.
"Oil companies are hunkering down for a downturn that will take longer than some initially thought," said Martijn Rats, head of European oil and gas equity research at Morgan Stanley (NYSE:MS).