Oil prices dip but hold above $40 ahead of producer meeting

By Henning Gloystein

SINGAPORE (Reuters) - Oil prices dipped on Tuesday, but both U.S. and international crude futures held above $40 per barrel ahead of a meeting of major producers to discuss freezing output levels to rein in ballooning oversupply.

U.S. West Texas Intermediate (WTI) crude futures were trading at $40.24 per barrel at 0356 GMT, down 12 cents from their last settlement.

International Brent crude futures were at $42.69 a barrel, 14 cents below their last close, but only 37 cents off their 2016-high reached the previous day.

Major oil producers from the Middle East and Russia, but excluding the United States, plan to meet in Qatar's capital Doha next Sunday. They will discuss measures to rein in ballooning oversupply which sees as many as 2 million barrels of crude produced every day in excess of demand, leaving storage tanks around the world filled to the rims with unsold and unwanted fuel.

Most analysts expect producers to freeze output around current levels, which being beyond consumption and close to record levels would do little to address the glut.

Reflecting a widespread view that oil prices will stay low for some time, the Brent forward price curve has significantly flattened, with the timespread between front-month futures and those for delivery in December 2017 narrowing from $8.70 per barrel in early March to just $4.70 a barrel currently.

"The potential risk for prices is for the downside as freezing output at current levels would be more of a symbolic act rather than a real market intervention. But you need to be open to surprises in this market," said Ric Spooner, chief market analyst at CMC Markets in Sydney.

While Spooner said that a production freeze would do little to address the immediate glut, he added that keeping key Middle East and Russian output around current levels might in the longer term lead to a more balanced market.

"There is demand growth, and production in the U.S. is falling, so if against that background there was a freeze, markets could get tighter at some stage," he said.

Analysts at Bernstein said that they expected global oil demand to grow at a mean annual rate of 1.4 percent between 2016 and 2020, versus annual growth of 1.1 percent over the past decade, adding that global demand would reach 101.1 million barrels per day (bpd) by 2020 from 94.6 million bpd now.

"The world will reach 'peak demand' before 'peak supply'. Global oil demand is likely to peak around 2030-35 at 108 million bpd," it added.

(Reporting by Henning Gloystein; Editing by Joseph Radford)