* Markets jolted by deepening Saudi-Iran crisis
* Oil production near record-highs to feed global oversupply
* Benchmark Dubai physical crude falls to lowest since 2004
(Repeats to additional subscribers)
By Amanda Cooper
LONDON, Jan 4 (Reuters) - Oil prices eased on Monday after
data showed some of Asia's largest economies are struggling,
which offset a boost from a breakdown in diplomatic ties between
Saudi Arabia and Iran that some believed could result in supply
restrictions.
Saudi Arabia, the world's biggest oil exporter, cut
diplomatic ties with Iran on Sunday in response to the storming
of its embassy in Tehran. The diplomatic row between the two
major oil producers escalated following Riyadh's execution of a
prominent Shi'ite cleric on Saturday.
But oil's early price gains fizzled after data showed
Chinese factory activity shrank for a 10th straight month,
prompting a 7-percent fall on Chinese stock markets and for
trading to be suspended.
Manufacturing activity in India, which the International
Energy Agency believes will lead growth in oil demand this year,
contracted for the first time in two years.
Benchmark Brent crude futures LCOc1 were last down 5 cents
on the day at $37.23 a barrel at 0900 GMT, having touched an
intraday high of $38.50.
U.S. West Texas Intermediate (WTI) futures CLc1 were down
10 cents at $36.94.
"Iran may decide to take more of a hardline stance against
the Saudi-oriented policy of not cutting production. So far,
they've been going along with it, but this renewed political
vigour may prompt them to change a bit," CMC Markets analyst
Jasper Lawler said.
"Really, this is still a bear market and people are just
selling the bounce because (the clash) is not going to affect
production. Obviously it's just tensions in the region."
Oil prices are still down by two-thirds since mid-2014 on
oversupply as producers including the Organization of the
Petroleum Exporting Countries (OPEC), Russia and the United
States pump between 0.5 million and 2 million barrels of oil
every day in excess of demand.
The clash between the two Middle Eastern countries comes as
Iran, which holds some of the largest proven reserves, hopes to
ramp up oil exports following the expected removal of sanctions
against it.
"OPEC, Russia and the U.S. beat our initial supply
expectations, adding to an existing inventory headwind. For 2016
we think of it as the market rebalancing year, but only from 2H
(the second half of 2016)," Alliance Bernstein said.
Alliance Bernstein said it expected average Brent prices to
fall to $50 in 2016 from $53 per barrel last year but to recover
to $70 a barrel in 2017 and to $80 in 2018.
Iran plans to raise output by half a million to 1 million
barrels per day (bpd) post lifting of sanctions, although
Iranian officials said they did not plan to flood the market
with its crude if there was no demand for it.
Iran's oil exports have fallen to around 1 million bpd, down
from a peak pre-sanctions peak of almost 3 million bpd in 2011.
In Russia oil output hit a post-Soviet high in 2015,
averaging 10.73 million bpd.
Dubai crude, as quoted by price-reporting agency Platts,
averaged $34.591 a barrel for December, the lowest since
December 2004 as Middle East suppliers offered discounts in a
battle for Asian market share.