Oil prices edge up after 5 percent fall, but outlook weak

By Henning Gloystein

SINGAPORE (Reuters) - Oil prices edged up on Tuesday, following a 5 percent drop in the previous session, as high global production and a weakening economic outlook in Asia prompted analysts to warn of further falls.

Oil output by the Organization of the Petroleum Exporting Countries (OPEC) reached the highest monthly level in recent history in July, and production could rise further if Iran achieves a plan to raise output by 500,000 barrels per day (bpd) as soon as sanctions are lifted.

With U.S. production also near records and China's economy showing further signs of slowing, prices on Monday were pulled down close to the six-year lows touched at the start of 2015 and Brent fell below $50 per barrel for the first time since January. It has spent over 90 percent of the past decade above the $50 mark.

Although prices rose on Tuesday, with Brent 35 cents higher at $49.87 a barrel by 0647 GMT and U.S. crude up 47 cents at $45.64 a barrel, analysts said more falls were expected.

BMI Research said a strong U.S. dollar, China's weakening economy, the prospect of rising Iranian oil exports would keep downward pressure on prices in the coming months.

"A retest of Brent crude's 2015 low around $45 per barrel looks inevitable given current ample market supply and intensifying bearish market sentiment towards prices," the firm said, although it added that it expected modestly higher prices in 2016 as prices above $60 a barrel were needed for most U.S. shale oil drillers to be profitable.

Most analysts cite oversupply as the main reason for the oil price falls over the last year, but slowing demand is now also adding to the downward pressure.

ANZ bank said that suggestions that cheap oil would cure itself by spurring demand may fail to play out as consumers look to save rather than spend.

"We'd argue the consumer is more inclined to save an additional dollar (from cheaper oil) now than spend it," the bank said.

"Prompt prices are being driven by demand ... and with run cuts on the way in Asia (due to falling margins), nearby crude prices and spreads (both in Asia and in the Atlantic Basin) will remain under pressure," Energy Aspects said.

(Editing by Ed Davies and Anand Basu)