Brent crude drops close to $88 in well-supplied oil market

By Florence Tan

SINGAPORE (Reuters) – Brent crude fell to just above $88 a barrel on Tuesday in a well-supplied market as expectations faded that OPEC could cut output in an effort to shore up prices.

The global oil benchmark has declined more than 20 percent from the 2014 high in June as supplies rose and demand slowed in the United States, Europeand China.

Investors expecting a production cut from OPEC to support prices were disappointed as Saudi Arabia and Kuwait played down the possibility of the Organization of the Petroleum Exporting Countries reducing output.

OPEC, which produces about 40 percent of the world's crude oil, is due to meet in late November to discuss output targets.

"There's been market chatter that Saudi Arabia is unlikely to cut production in the November meeting so that's probably playing on the market," said Ankit Pahuja, a commodity strategist at ANZ in Melbourne.

"Seasonally, it's a weak point. We think there's more scope for recovery in November and December."

Brent crude fell 52 cents a barrel to $88.37 by 0645 GMT after touching $87.74 on Monday, the lowest since December 2010. The November contract expires on Thursday.

U.S. crude dropped 48 cents a barrel to $85.26 after it pared sharp intraday losses on Monday to settle down 8 cents.

"There was probably some positivity that came out of the China data yesterday," Pahuja said. Underlying oil demand in the world's top energy consumer was still "quite strong", he said.

China posted a strong rebound in commodities imports in September, including a 13 percent rise in crude oil imports compared with August.

Despite the recent price slump, some analysts expect oil markets to recover ahead of peak winter demand in the Northern Hemisphere.

"We see the potential for a positive bounce into year-end, particularly given extremely bearish sentiment and positioning," Morgan Stanley analysts said in a note.

"Even if OPEC is not overly responsive before year-end, which we expect, fundamentals have turned, which should eventually lift crude prices."

Investors are looking ahead to weekly oil inventories data from the United States for price direction.

U.S. commercial crude stocks were forecast to have increased in the week ended Oct. 10, while refined products likely fell, according to a Reuters survey ahead of the inventory reports out of the world's biggest oil consumer.

Industry group the American Petroleum Institute (API) will issue its report on Wednesday, and the U.S. Department of Energy's Energy Information Administration (EIA) will follow with its weekly data on Thursday. The reports have been delayed a day due to Monday's Columbus Day holiday.