UPDATE 2-Oil drops as Saudi output nears record, China demand worries drag

* China PMI falls below 50 points

* Saudi output near record highs

* Crude oversupply of 2 mln barrels per day seen in Q2 -FGE

* Refinery margins to deteriorate in second half of year -FGE (Adds comment, updates prices)

By Henning Gloystein

SINGAPORE, March 24 (Reuters) – Oil prices dropped on Tuesday after activity in China’s factory sector fell to an 11-month low and as Saudi Arabia said its production was close to an all-time high.

The flash HSBC/Markit Purchasing Managers’ Index (PMI) dipped to 49.2 in March, below the 50-point level that separates growth in activity from a contraction on a monthly basis, stoking worries over the strength of the world’s No.2 economy. Economists polled by Reuters had forecast a reading of 50.6. CONTINUE READING

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