Oil prices dip as global oversupply outweighs strong demand

By Henning Gloystein
SINGAPORE, March 10 (Reuters) - Oil prices dipped early on
Thursday after U.S. crude hit 2016 highs the day before and
Brent shot back over $40 per barrel, with analysts warning that
larger gains would be unwarranted as a global glut continues to
outweigh strong demand.
International Brent crude futures LCOc1 were at $40.95 per
barrel at 0142 GMT, down 12 cents from their last close.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were
down 5 cents at $38.24 per barrel.
The dips came after prices rose as much as 5 percent on
Wednesday, with U.S. crude hitting three-month highs following a
big gasoline inventory drawdown, which overshadowed record-high
crude stockpiles.
But analysts warned that a global crude production overhang
of over 1 million barrels per day (bpd) showed few signs of
abating.
With U.S. crude inventories at records despite strong
demand, the focus lies on a potential agreement between
producers from the Organization of the Petroleum Exporting
Countries (OPEC), led by Saudi Arabia, and non-OPEC exporters
led by Russia to rein in output.
Yet beyond announcing talks about freezing output near
record levels, no agreement has been reached.
Barclays (LON:BARC) said there was no talk of a production cut during a
research trip to Saudi Arabia and that the country's goal was to
maximize its oil revenue by maintaining current production
levels.
Barclays said that Saudi Arabia would likely keep production
around 10.2 million bpd over the next five years.
Most analysts expect the oil glut to last into 2017 or even
2018, resulting in relatively low crude prices.
Only by 2020 is there a consensus for prices to rise towards
$70 a barrel, based on lower production due to low investment
and defaults as well as strong fuel demand especially from China
and other emerging markets.
But Deutsche Bank (DE:DBKGn) said that China might see lower than
expected fuel demand growth from the 2020s.
"Chinese oil demand growth, the largest single contributor
to world oil demand growth, may begin to flatten more quickly
than some long-term projections indicate," the bank said in a
report to clients this week.
"This could result in world oil demand growth falling from
its 2000-2016 trend of 1.1 million bpd year-on-year to only
800,000 bpd ... by 2024."
A slowdown in China's oil demand would have significant
impact on global crude prices as it has accounted for 37.5
percent of world oil demand growth since 2010, Deutsche said.