By Jack Stubbs
LONDON (Reuters) - Oil dropped below $62 a barrel on Wednesday, failing to build on gains of more than 1 percent in the previous session as analysts said a recent rally in prices was overblown.
"The lack of follow-through higher yesterday is a worry and there's plenty of reason to be neutral here and observe carefully," PVM Oil Associates director and technical analyst Robin Bieber said.
Oil prices have risen more than 35 percent since hitting an almost six-year low of $45.19 in January, in a rally fuelled by lower industry spending and falling rig counts in the United States.
Benchmark Brent crude futures were down 83 cents at $61.70 by 0855 GMT, having fallen more than $1 to $61.47 earlier in the session. U.S. crude traded at $52.93 a barrel, down 60 cents.
"The contracts will look very fragile and accident-prone if one or two more contracts fail to hold key support," Bieber said.
Volumes were significantly reduced in early trading as several Asian countries started the Lunar New Year holidays, which last for the rest of the week.
BNP Paribas analysts said the recent surge in prices was premature given record-high U.S. crude stocks.
"U.S. refinery outages, through seasonal maintenance and industrial action, will weaken U.S. crude demand, exacerbating the crude stock excess in the near term," oil strategists Gareth Lewis-Davies and Harry Tchilinguirian said in a note to traders.
U.S. commercial crude oil stockpiles are already at their highest since records began and are expected to have risen again last week by 3.1 million barrels, a preliminary Reuters survey showed on Tuesday.
U.S. stocks data from industry group the American Petroleum Institute is due later on Wednesday.
Increased instability in the Middle East lent prices support.
Egyptian President Abdel Fattah al-Sisi called on Tuesday for a United Nations resolution mandating an international coalition to intervene in Libya against Islamic State militants.
Egypt's air force bombed Islamic State targets in the neighbouring country on Monday after the militants released a video showing the beheading of 21 Egyptian Christians.
"Geopolitical developments are heating up in the MENA (Middle East, North Africa) region again," JBC Energy analysts wrote.