Oil pares most gains after warning market could 'drown in oversupply'

Tue Jan 19, 2016 4:03pm EST
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By Devika Krishna Kumar

NEW YORK (Reuters) - Brent crude rebounded on Tuesday from 12-years lows after data showed record demand in China, but a warning by the world's energy watchdog that the market could "drown in oversupply" limited the global benchmark's gains and sent U.S. crude down to its lowest since 2003.

Analysts also attributed much of Brent's bounce from under $28 a barrel on Monday to a brief short-covering rally after oil prices crashed over 20 percent this year, triggering a record volume of short positions in the week through Jan. 12.

"It seems to be a healthy upside correction in an otherwise downtrending market," said Tamas Varga, oil analyst at London brokerage PVM Oil Associates.

Brent LCOc1 settled up 0.7 percent or 21 cents at $28.76 a barrel. It traded as high as $30.24, rebounding from $27.67 on Monday, its lowest since November 2003.

U.S. crude CLc1 settled at $28.46 a barrel, down 96 cents or 3.26 pct, at its lowest level since September 2003. The U.S. market was shut on Monday due to a public holiday.

The market drew support from preliminary Reuters calculations that showed oil in China, the world's No. 2 oil consumer, likely hit a record high in 2015 of 10.32 million barrels per day (bpd), up 2.5 percent from 2014.

Fears of oversupply, however, resurfaced after the International Energy Agency, which advises industrialized countries on energy policy, said the global oil glut was set to last until at least late 2016 due to unseasonably warm weather and rising supply.

The oversupply is set to worsen with the return of Iranian barrels to the market following the lifting of nuclear-related Western sanctions.   Continued...

An oil pump jack can be seen in Cisco, Texas, August 23, 2015.  REUTERS/Mike Stone