Oil prices dip after Saudis say could raise output to meet demand
Crude demand remains strong despite slowing global economy
Oil prices dipped on Friday after Saudi Arabia said it was ready to raise output further if needed, potentially adding to oversupply amid a slowing global economy and halting gains made previously in the week.
U.S. crude prices hit a high of $61.82 a barrel earlier this week, their strongest since May 6, as firm demand and a strong U.S. stock drawdown lifted the market.
But the rally was halted by a dimming global economic outlook as well as top crude exporter Saudi Arabia saying it was ready to increase its oil output in coming months to a record high to meet a rise in global demand.
Despite a steadily falling rig-count, analysts said U.S. production was also likely to remain high.
“U.S. oil producers are working through a large backlog of drilled but uncompleted wells, which have a significantly lower cost hurdle to achieve production,” National Australia Bank said on Friday.
“Combined with sustained strength in OPEC production, the current glut situation is expected to persist for longer than previously expected, thus limiting the upward mobility in prices for the rest of 2015 and 2016,” it added.
On the demand side, Japan’s May crude oil purchases by its big utilities fell 47.4 percent compared with the same month last year, and they also bought less natural gas and coal.
Front month U.S. crude fell 31 cents to $60.32 a barrel by 0558 GMT.
Brent futures were down 38 cents at $64.73 a barrel.
Thanks to relatively cheap crude oil, refiners have enjoyed high margins as demand for refined products has been strong, but there are early signs that overproduction will pull down margins as product oversupply emerges.
Independent stocks of oil products at Europe's Amsterdam-Rotterdam-Antwerp hub rose 5 percent in the week to Thursday to hit a record high of 5.845 million tonnes.
While gasoline refining margins remain near three-year highs and surprising diesel demand growth underpinned its margins, the profitability of European jet fuel has declined as thousands of tonnes in surplus cargoes land from new refineries in the Middle East. Some analysts and traders say jet fuel's fate could foretell margins for other oil products, particularly diesel.
Should demand for refined products fall due to emerging oversupply, analysts have said that would spill back into the crude market and pull down prices there as well, as refineries slash orders and reduce output.
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