By Devika Krishna Kumar

NEW YORK (Reuters) – Oil prices fell to 2-1/2-month lows on Monday on rising concerns that a global glut of crude and refined products would weigh on markets, delaying a long-anticipated rebalance in the market.

Data from market intelligence firm Genscape pointing to a an inventory rise of 1.1 million barrels at the Cushing, Oklahoma delivery base for U.S. crude futures in the week to July 22 weighed down crude prices, said traders who saw the numbers.

A massive overhang in refined products, particularly gasoline, despite forecasts for record U.S. summer driving has made investors less optimistic about a quick market rebalancing.

The threat of resurgent U.S. oil production with the rise of drilling rigs and a strong dollar added to the gloomy sentiment in the market, traders and brokers said. [USD/] [RIG/U]

Brent crude futures were down 89 cents at $44.80 a barrel by 11:13 a.m. EST (1513 GMT), their lowest since May 10. U.S. crude was down 93 cents at $43.26 a barrel, after touching a low of $43.18, also the lowest since May 10.

“Supply continues to return from disruptions, refined products are severely oversupplied, crude demand is falling well short of product demand, and key product demand is decelerating,” Morgan Stanley said in a note.

The decline in U.S. output has been key to balancing a market that has been grappling with excess crude for nearly two years, but with prices recovering from 12-year lows, signs of drilling activity have re-emerged.

U.S. drillers added oil rigs for a fourth consecutive week, according to last week’s data from a closely followed report by energy services firm Baker Hughes.

But it could be premature to assume it could lead to a rise in production, some analysts said.

“Although drilling activity is now at its highest level since the end of March, it is still 30 percent below the level at which it found itself at the beginning of the year.” Commerzbank analysts said in a note.

Barclays bank said global oil demand in the third quarter of 2016 was expanding at less than a third of the year-earlier rate, weighed down by anaemic economic growth.

Globally, demand support from developed economies had faded, while growth from China and India had slowed, Barclays said.

New tensions in Libya highlight that the OPEC member is unlikely to see a significant boost to its oil exports any time soon, after the national oil corporation said it objected to a deal to reopen key ports.

(Additional reporting by Ahmad Ghaddar in London, Henning Gloystein in Singapore and Osamu Tsukimori in Tokyo; Editing by William Hardy and M Choy)