Oil on verge of weekly decline despite strong Chinese imports

By Libby George and Ron Bousso

LONDON (Reuters) - Crude oil prices edged higher on Friday, set for their first weekly decline in more than a month as strong Chinese crude imports eased concerns over a growing supply glut.

Benchmark Brent crude was at $65.83 per barrel at 1145 GMT, up 29 cents after hitting a session high of $66.01, on track for a 1 percent weekly decline. U.S. crude was 48 cents higher at $59.42 a barrel, little changed on the week.

Brent was still around $4 below the 2015 peak reached earlier in the week, hit by a resurgent dollar and signals that some U.S. producers would ramp up drilling if prices continued to rise.

Analysts said Brent seemed capped around $70, and may already be overvalued as oversupply continued and U.S. producers, which have sharply reduced drilling in recent months of low prices, could increase production.

"The small drop in U.S. production in recent weeks certainly does not justify the 30-40 percent price increase" since January, said Hans van Cleef, senior energy economist with ABN AMRO.

"The oil market is still very much supply-driven, and in the end, we face a huge oversupply."

But U.S. shale producers indicated that the recent gains in oil prices could lead to new drilling. Harrold Hamm, chief executive officer of Continental Resources, said on Thursday that $70 a barrel is a price "that turns it on for us".

Later on Friday, oil services company Baker Hughes will publish its weekly U.S. oil rig count, a key data point for the industry's activity which has declined for 21 straight weeks.

"If the oil rig count were to stop falling, this would presumably put considerable pressure on oil prices, though this is not likely to happen this week," Commerzbank analysts said in a note.

Prices also received a boost later in the day as other financial markets rose on the back of an unexpectedly decisive election victory for Britain's ruling Conservative Party.

Markets are also watching for U.S. nonfarm payrolls data due later in the day, as another weak reading could deepen worries that the U.S. economy may not be gathering momentum.

China imported 30.29 million tonnes of crude oil in April (222 million barrels), up 13.0 percent from 26.81 million tonnes in the previous month, although its exports, denominated in yuan, fell 6.2 percent in April from a year earlier.

Analysts cautioned that the figure could be a sign of a stock build in the world's second-largest oil consumer, where strategic petroleum reserves are reportedly close to capacity.

(Additional reporting by Henning Gloysten in Singapore; Editing by Dale Hudson/Ruth Pitchford)