Oil prices drop as China factory activity falls to 11-month low

By Henning Gloystein

SINGAPORE (Reuters) - Oil prices edged lower in early Asian trade on Tuesday after activity in China's factory sector fell to an 11-month low, stoking worries over the strength of the world's No.2 economy.

The flash HSBC/Markit Purchasing Managers' Index (PMI) dipped to 49.2 in March, below the 50-point level that separates growth in activity from a contraction on a monthly basis. Economists polled by Reuters had forecast a reading of 50.6.

Brent crude oil futures were trading down 11 cents at $55.81 a barrel at 0215 GMT. U.S. WTI crude dropped 20 cents to $47.25 a barrel.

Worries over slowing growth in China's economy have contributed to a global surplus in oil supplies.

"We expect crude prices to be pressured once again by the weight of some 2 million barrels per day of oversupply in Q2 2015," energy consultancy FGE said in a note on Tuesday.

The refinery sector has benefited from cheap oil, which has improved margins for oil products such as diesel or jet fuel.

"A sharp decline in crude prices over late 2014 and into January 2015, followed by an extraordinarily cold February (in the United States and parts of Europe), has meant good times for refiners," FGE said, but it added that high refinery margins were unlikely to last.

"In H2 2015, we see an oversupplied products market even as crude prices begin to recover. Refinery margins will adjust downwards."

(Editing by Joseph Radford)