Oil prices rise but possible battle for market share caps gains

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[April 26, 2016]  By Dmitry Zhdannikov and Amanda Cooper

LONDON (Reuters) - Oil prices rose on Tuesday, boosted by a weaker dollar and by expectations that demand could grow quickly enough to match supply this year, although concern over a potential battle for market share between Saudi Arabia and Iran limited gains.

Front-month Brent crude futures were up by 59 cents to $45.04 a barrel at 1122 GMT (6:22 a.m. ET). U.S. crude futures rose 54 cents to $43.18 a barrel.

"Market fundamentals continue to suggest that the combination of robust demand and weak supply growth will move global oil markets closer into balance by the end of the year," BP Chief Executive Bob Dudley said in a statement after the firm reported stronger-than-expected results.

Helping prices were a weaker dollar and a rush of new investment into crude futures.

The oil price has risen by nearly 14 percent in April, putting it on track for its largest monthly gain in a year.

However, some analysts warned it was too early to call an end to the crude glut as Saudi Arabia and Iran could ramp up output further in a race for customers.

"The biggest bear risk to the oil market right now is that Iran's ramp-up accelerates and then that Saudi Arabia does the same," Citi said in a note to clients.

"If anyone had a doubt about Saudi Aramco's ability to use its logistical system and spot sales to increase market share, its recent 730,000-barrel sale of a cargo to a Chinese teapot refiner in Shandong should lay any doubts to rest," it said.

The cargo will be lifted in June from Aramco's storage in Japan's Okinawa prefecture and shipped to China's eastern province of Shandong, Reuters reported.

Citi said it was likely that Saudi Arabia was targeting 500,000 barrels per day (bpd) in new sales to bring its production up to at least 11 million bpd.

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BMI Research said it had upgraded its Saudi crude production forecast, "reflecting the failure of the meeting at Doha, planned increases in output capacity and the creeping politicization of oil under Deputy Crown Prince Mohammed bin Salman".

On April 17, a deal to freeze oil output levels by OPEC and non-OPEC producers fell apart after Saudi Arabia, during talks in the Qatari capital of Doha, demanded Iran join in.

BMI said it expected Saudi output to average 10.3 million bpd, up from a previous estimate of 10.2 million bpd.

Iran wants to return to its pre-sanctions production level of 4 million bpd.

(Additional reporting by Henning Gloystein in Singapore; editing by Dale Hudson and Jason Neely)

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