Weak China data weighs on oil prices

By Henning Gloystein

SINGAPORE (Reuters) - Oil prices dropped in Asian trading hours on Monday as analysts expected weaker demand from China in upcoming months, but firming Japanese economic data offered some support.

Benchmark U.S. crude futures had fallen 15 cents from their last settlement to $46.44 per barrel by 0751 GMT, while internationally traded Brent futures were at $49.50 a barrel, down 6 cents.

Monday's bearish sentiment came after gains made last week following a further decline in the U.S. oil rig count which indicated that domestic crude production could drop in coming months.

But in Asia, the possibility of slowing demand in China dominated trade on Monday, with growth faltering in the world's No.2 economy.

"As global growth expectations contract further, low prices continue to curb our supply expectations," Barclays Bank said.

While China has so far avoided a hard landing, activity in China's manufacturing sector contracted in October for a third straight month, an official survey showed on Sunday, fuelling fears the economy may still be losing momentum in the fourth quarter despite a raft of stimulus measures.

"Weak economic data out of China will likely keep any gains in commodity prices limited," ANZ said.

Barclays said China's oil demand growth for September, adjusted for inventories, slowed to 226,500 barrels per day (bpd), or 2.1 percent, compared with the same month last year, much lower than the 6.3-percent gain registered for the first three quarters of the year.

"The strong demand data in the first eight months was inconsistent with the observed slowing macroeconomic activity, while the weak number in September better reflected real demand," the bank said.

Leading economic indicators in other Asian economies were mixed, with South Korea and Taiwan figures pointing to further slowdown, although data improved from Japan, Asia's second biggest economy and a major oil consumer.

On the supply side, Russian oil output stood at 10.78 million barrels per day (bpd) in October, up from 10.74 million bpd in September, government data showed on Monday.

Analysts said there were also shifts taking place within the markets of different oil products.

"Light tight oil growth is flatlining, while medium and heavy sour supplies look set to stage a comeback next year," Barclays said.

"Likewise, industrial-led diesel demand growth is ebbing as consumer-led gasoline growth stays strong ... The magnitude of the changes, the uncertainty with their timing, and the Gorilla El-Nino are likely to give refined product and crude prices a whiplash."

(Reporting by Henning Gloystein; Editing by Joseph Radford and Sunil Nair)