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Oil falls towards US$63, ample supplies and Greece weigh

[LONDON] Oil fell towards US$63 a barrel on Friday as concern over Greece and a forecast that US shale oil output would keep growing this year countered signs of a pickup in demand.

Greece has been less of a driver for oil than other markets such as equities, but analysts said the situation represented a bearish risk heading into the weekend. Eurozone leaders will hold an emergency summit on Monday to try to avert a Greek default.

Brent crude for August had dropped US$1.00 to US$63.26 as of 1345 GMT, while US crude for July was down 78 cents at $59.67. Both contracts made gains on Thursday.

"Oil markets are not pricing much in terms of Greek risk but most of the European oil demand growth this year is coming from the southern countries," said Olivier Jakob of Petromatrix in Zug, Switzerland. "Therefore, if there was a Greek default and a contagion of a risk premium to other southern European countries it could have a negative impact on European oil demand."

Saudi Arabian oil minister Ali al-Naimi said he was optimistic about the market in coming months, given increased demand and falling inventories, state media reported on Thursday. US crude stocks declined in the latest week.

Despite stronger demand, supply is more than ample. There has been a buildup of North Sea and Nigerian crude cargoes, putting price differentials under pressure and sending them in some cases to multi-year lows.

Brent is down from US$115 a year ago, in a drop that deepened after the Organization of the Petroleum Exporting Countries refused to prop up the market in the hope that lower prices would slow supply from higher-cost producers such as US shale.

US shale producers have projected a rise in output for the year, however, despite scaling back drilling to cope with the price slump.

Brent could be weighed down in coming days by concerns over Greece, plus ample supply and the prospect of a deal over Iran's nuclear programme allowing higher Iranian oil exports.

"Over the next 14 days there is likely to be increasing risk tension regarding the Greek eurozone membership which could help to drive risk aversion higher, and potentially also the dollar stronger," said Bjarne Schieldrop, chief commodities analyst at SEB Markets in Oslo. "Logic calls for real and significant downside price risk for Brent."