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Oil sinks amid recovery of Saudi output, threats to demand growth

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IEA executive director Fatih Birol says: "If the global economy weakens, for which there are already some signs, we may lower oil demand expectations."

Singapore

OIL prices fell on Friday as economic headwinds revived concerns of slowing global demand growth and a faster-than-expected recovery in Saudi crude oil output eased worries over potential major supply disruptions.

The International Energy Agency (IEA) said on Friday it may cut its growth estimates for global oil demand for 2019 and 2020, should the global economy weaken further.

"It will depend on the global economy. If the global economy weakens, for which there are already some signs, we may lower oil demand expectations," IEA Executive Director Fatih Birol said.

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In China, the world's second largest economy and top importer of crude, industrial firms reported a contraction in profits in August, reversing the previous month's brief expansion, as weak domestic demand and a trade war with the United States weighed on corporate balance sheets.

"Oil prices continued to slide lower after a drop in China's industrial profits in August reinforced worries that the world's second-largest economy continues to decelerate," said Edward Moya, senior market analyst at OANDA.

Brent crude futures fell 55 cents, or 0.9 per cent, from the previous session's close to US$62.19 a barrel by 0653 GMT.

US West Texas Intermediate (WTI) crude futures fell 30 cents, or 0.5 per cent, to US$56.11 a barrel.

The rapid return of oil production from top world exporter Saudi Arabia less than two weeks after the Sept 14 attacks also squashed risk premiums and dragged crude prices lower, analysts said.

"For most of the week ... the market has been trading lower as oil bulls have been discouraged by the quicker-than-expected return of Saudi oil output," said Stephen Innes, Asia Pacific market strategist at AxiTrader.

WTI futures were down 3.4 per cent so far for the week, marking the largest weekly loss in 10 weeks, while Brent was down 3.3 per cent for the week, its largest weekly loss in seven.

A surprise 2.4 million-barrel build in US crude inventories last week also weighed on prices.

US inventories may rise further over the near term, further pressuring prices, as American refiners curb runs for maintenance, analysts said.

"The expected lower demand for oil inputs into (US) refineries typically sees US crude inventories swell, all of which could pose a significant downside risk for prompt oil prices," Mr Innes said.

Emerging details connected to the impeachment inquiry into US President Donald Trump also helped dent demand sentiment, analysts said.

"Trump's impeachment inquiry also raises uncertainty surrounding his foreign policy," said Margaret Yang Yan, a market analyst at CMC Markets, particularly on Iran and China.

"The market is assessing how this political turbulence may affect his ability and position to impose further sanctions on Iran, which will have significant impact on global oil supply." REUTERS