Oil prices fall as demand stalls

By Henning Gloystein

SINGAPORE (Reuters) - Oil prices fell on Monday in Asian trading as weakening demand weighed on markets, although U.S. futures received some support from reduced American drilling.

Front-month Brent crude futures were down around 40 cents from their last settlement at $47.73 per barrel at 0402 GMT. U.S. crude futures dipped 16 cents to $44.46.

The U.S. oil rig count fell by 10 to 652 last week, the second straight monthly drop, and the International Energy Agency said on Friday that ongoing production cuts would lead to a rebalancing of the market by next year.

Yet several banks said the immediate outlook remained weak.

"Both the supply and demand pictures look less favourable over the coming months ... Outside the U.S., oil fundamentals appear to be slipping seasonally," Morgan Stanley said on Monday, adding that there was potential for floating storage within the second half of 2015.

Macquarie noted that falling global auto sales in August were dragging on demand.

"Sales were 1.0 percent lower YoY (year-on-year), slightly more than the 0.8 percent fall seen in July 2015," the bank said, although it added that sales could pick up towards the end of the year.

ANZ bank said high production in the Middle East remained a concern on the supply side. OPEC's monthly market report will be published later on Monday.

In part due to oversupply and to defend market share, Kuwait set its October Official Selling Price for crude to Asia 60 cents lower than September, at a discount of $1.95 per barrel versus Oman/Dubai levels.

Cheap oil undermines the health of energy firms, which have already seen steep share devaluations since prices started falling in 2014.

"The trajectory of the (oil price) recovery keeps getting shallower as our expectations for OPEC output shifts up ... The financial condition of the sector deteriorates further through 2017," Jefferies bank said.

"We are lowering our Brent oil price forecast by 9 percent to $54 per barrel (bbl) in 2015, 10 percent to $61/bbl in 2016 and 6 percent to $73/bbl in 2017," Jefferies said.

Traders will this week eye U.S. monetary policy as the Fed will kick off a two-day policy meeting on Wednesday.

Should interest rates be raised for the first time in years, analysts expect oil to fall as demand is hit due to higher import prices for countries not using the dollar.

(Editing by Richard Pullin and Tom Hogue)