Oil Sags on China Fuel Exports, U.S. Rig Count

Refined product glut ongoing as China exports soar; U.S. drillers add rigs for eighth consecutive week.

Oil prices fell nearly 3 percent on Monday as China ramped up exports of refined products, U.S. oil producers added rigs for an eighth consecutive week, and prospects emerged for increased exports from Iraq and Nigeria.

Brent crude futures were trading at $49.39 per barrel at 1028 GMT, down $1.49 from their last close.

U.S. West Texas Intermediate (WTI) crude was down $1.27 at $47.25 a barrel.

China's July exports of diesel and gasoline soared by 181.8 and 145.2 percent respectively compared with the same month last year, putting pressure on refined product margins.

Because of the production and storage overhang in fuel markets, Barclays (BCS) said a 20 percent price rally seen in August was unwarranted and that oil prices of $50 or higher were unsustainable.

"Oil prices will likely experience another short-term dip in the coming weeks," it added.

Adding to the bearish sentiment, U.S. drillers added 10 oil rigs in the week to Aug. 19 as crude rebounded towards the key $50 mark that makes a return to the well pad viable.

"We expect the oil market next year to be somewhere between balanced and up to as much as 1 million barrels per day (bpd) in deficit," Bjarne Schieldrop, chief commodity analyst at Nordic bank SEB, said.

Schieldrop said the 32 rigs added in August alone would add close to 200,000 bpd of extra supply through 2017.

Iraq's plans this week to increase exports of Kirkuk crude by 150,000 bpd from northern fields after an outage since March weighed on prices, traders said.

Also hitting sentiment was an announcement by a Nigerian militant group that it was ready for a ceasefire and dialogue with the government. The group has claimed a wave of attacks on oil facilities in the Niger Delta.

The restive southern swampland region has been rocked by violence against oil and gas pipelines since the start of the year, reducing the OPEC member's output by 700,000 bpd to 1.56 million bpd.

A stronger dollar also pressured prices. The dollar index rose 0.27 percent, making commodities priced in the U.S. currency more expensive for holders of other currencies.

By Ahmad Ghaddar