Oil falls as markets dip on North Korea tensions

By Karolin Schaps

AMSTERDAM (Reuters) - Oil prices fell on Friday as global markets weakened following North Korea's latest missile launch, but crude remained close to five-month highs reached this week on bullish demand forecasts and U.S. refineries restarting.

North Korea fired a missile that flew over Japan's northern Hokkaido into the Pacific Ocean on Friday, South Korean and Japanese officials said. The action ratchets up tensions after Pyongyang's test of its most powerful nuclear bomb.

"Oil is down because of the North Korean nuclear test which is bearish for stock markets therefore oil demand can be negatively impacted," said Tamas Varga, senior analyst at London brokerage PVM Oil Associates.

Benchmark Brent crude was down 18 cents at $55.29 a barrel at 0843 GMT, reaching a low for the day of $54.86 a barrel. But Brent was still on track for its third straight weekly gain and the highest weekly rise since the end of July.

U.S. West Texas Intermediate crude was down 16 cents at $49.73 a barrel. The contract was set for a 4.7 percent weekly gain, also its strongest in nearly two months.

The Organization of the Petroleum Exporting Countries this week forecast higher demand for its oil in 2018 and pointed to signs of a tighter global market, indicating its deal with non-OPEC states to cut output is helping tackle a glut.

That was followed by a report by the International Energy Agency (IEA) saying the global oil glut was shrinking thanks to strong European and U.S. demand, as well as production declines in OPEC and non-OPEC countries.

"Prices have now advanced for the last two weeks off increased demand forecasts from both OPEC and the IEA combined with the near-term demand uplift expected as U.S. oil refineries seek to restart operations post Hurricane Harvey," said analysts at Panmure Gordon.

On Wednesday, 13 of 20 affected U.S. refineries were at or near normal operating rates and another five were restarting or ramping up, according to IHS Markit.

BP Chief Executive Bob Dudley told Reuters in an interview that oil prices were likely to stay between $50 and $60 as major producers kept output restricted.

(Additional reporting by Aaron Sheldrick in Tokyo; Editing by Edmund Blair)