By Jenny W. Hsu

Crude prices were lower in Asian trade on Friday as investors cashed in profits ahead of the holiday break.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in February traded at $52.62 a barrel at 0325 GMT, down $0.33 in the Globex electronic session. February Brent crude on London's ICE Futures exchange fell $0.31 to $54.74 a barrel.

Oil trading has been tepid ahead of the holidays but overall sentiment remains positive as traders and analysts still expect global oil supply to shrink after major producers, both in and outside of the Organization of the Petroleum Exporting Countries agreed to slash output by almost 2% last month.

That has kept oil above $50 a barrel for more days this month than any other since July 2015, but many investors are still skeptical of the OPEC. Its spotty record for adhering to production quotas is casting doubts over whether the cuts will fully materialize after they begin in January.

"We believe the oil rebalancing story is happening and prices will go up above $60 a barrel in 2017," said Barnabas Gan, an economist at Singapore-based OCBC.

According to the International Energy Agency, global oil demand growth will rise by 1.4 million barrels a day, mainly due to stronger-than-expected Chinese demand.

In November, China's crude imports rose 18% year-over-year to 32.35 million tons or around 7.9 million barrels a day. So far this year, China's crude import has risen 14% compared with the previous year. Analysts say the surge is due to Beijing's new policy started in mid-2015 which allows independent refiners, known as teapots, to import crude and export products.

However, recent media reports say the government is contemplating to suspend these refiners' rights to export products such as gasoline and diesel starting next year. The move, if confirmed by the government, will likely only affect the domestic oil industry, but will not impact the country's overall import and export volume, said Mr. Gan.

Even if teapot refiners can't exports their products, they can still sell their products to the state-owned oil companies who in turn can then export, he said.

"If the government really suspends the refiners' right to export, it might be because domestic demand for oil products is rising," said Gao Jian, a commodities analyst at SCI International.

He said many refiners decreased production of diesel in late 2015 and 2016 when demand for diesel--mainly used in heavy industries--was down. However, as the government allowed more coal mines to stay open and commissioned more public infrastructureprojects, demand for diesel pivoted up.

In 2016, China's diesel demand fell 1.5% on-year to 3.29 million barrels a day, but is expected to rise by 0.7% next year to 3.32 million barrels a day, according to the IEA.

Nymex reformulated gasoline blendstock for January--the benchmark gasoline contract--fell 84 points to $1.5956 a gallon, while January diesel traded at $1.6567, 41 points lower.

ICE gasoil for January changed hands at $485.00 a metric ton, down $2.25 from Thursday's settlement.

Write to Jenny W. Hsu at jenny.hsu@wsj.com

(END) Dow Jones Newswires

December 22, 2016 22:58 ET (03:58 GMT)

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