By Henning Gloystein
SINGAPORE, March 10 (Reuters) - Oil prices dipped early on Thursday after U.S. crude hit 2016 highs the day before and Brent shot back over $40 per barrel, with analysts warning that larger gains would be unwarranted as a global glut continues to outweigh strong demand.
International Brent crude futures LCOc1 were at $40.95 per barrel at 0142 GMT, down 12 cents from their last close.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were down 5 cents at $38.24 per barrel.
The dips came after prices rose as much as 5 percent on Wednesday, with U.S. crude hitting three-month highs following a big gasoline inventory drawdown, which overshadowed record-high crude stockpiles. analysts warned that a global crude production overhang of over 1 million barrels per day (bpd) showed few signs of abating.
With U.S. crude inventories at records despite strong demand, the focus lies on a potential agreement between producers from the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and non-OPEC exporters led by Russia to rein in output.
Yet beyond announcing talks about freezing output near record levels, no agreement has been reached.
Barclays (LON:BARC) said there was no talk of a production cut during a research trip to Saudi Arabia and that the country's goal was to maximize its oil revenue by maintaining current production levels.
Barclays said that Saudi Arabia would likely keep production around 10.2 million bpd over the next five years.
Most analysts expect the oil glut to last into 2017 or even 2018, resulting in relatively low crude prices.
Only by 2020 is there a consensus for prices to rise towards $70 a barrel, based on lower production due to low investment and defaults as well as strong fuel demand especially from China and other emerging markets. Deutsche Bank (DE:DBKGn) said that China might see lower than expected fuel demand growth from the 2020s.
"Chinese oil demand growth, the largest single contributor to world oil demand growth, may begin to flatten more quickly than some long-term projections indicate," the bank said in a report to clients this week.
"This could result in world oil demand growth falling from its 2000-2016 trend of 1.1 million bpd year-on-year to only 800,000 bpd ... by 2024."
A slowdown in China's oil demand would have significant impact on global crude prices as it has accounted for 37.5 percent of world oil demand growth since 2010, Deutsche said.