Oil prices drop as oversupply weighs on markets

By Henning Gloystein

SINGAPORE (Reuters) - Crude oil prices fell on Wednesday as oversupply weighed on markets, with OPEC not expected to announce a production cut at its meeting on Friday.

Core Gulf members of the Organization of the Petroleum Exporting Countries (OPEC), which controls over 40 percent of the world's crude production, have a consensus to maintain the group's oil output at its meeting this week, a senior Gulf OPEC delegate told Reuters in Vienna on Tuesday.

"There is consensus among Gulf OPEC countries, and others, to keep the (production) ceiling unchanged," the source said.

"Nobody wants to rock the boat. The meeting is expected to be smooth sailing."

High production by OPEC, but also from other regions like U.S. shale producers and Russia, has contributed to oversupply and left tankers filled with millions of barrels of oil without buyers.

Some analysts said there was a chance OPEC could increase its production target.

"With heightened geopolitical risk threatening oil supplies in the Middle East and North Africa, it is highly unlikely that OPEC will reduce the quota, but an increase is possible," Barclays said in a preview note of Friday's meeting.

Front-month Brent futures had dropped 38 cents from their last settlement to $65.11 a barrel by 0710 GMT on Wednesday. U.S. crude futures were down 59 cents at $60.67 a barrel.

Brent prices have been trading in a relatively narrow price range between $60-70 per barrel since mid-April as strong demand, especially from Asian refiners has been countered by oversupply.

"Demand is strong but so is supply ... Even with crude markets tightening in second half 2015, large volumes of crude in storage will require time spreads remunerating storage," Pira Energy said.

Analysts from Citi said this week that given OPEC was widely expected to maintain its output policies, the global surplus would last well into 2016.

(Editing by Joseph Radford)