Oil edges up as multi-year lows trigger buying

OPEC Secretary General said that current low oil prices would not continue and may rise in a few months or a year

Oil prices edged higher on Tuesday as a slump to near 11-year lows in the previous session whetted investors' buying appetite but a lingering supply glut kept prices near troughs last seen during the financial crisis.

Brent crude, the global benchmark, had risen 55 cents to $38.47 a barrel by 1253 GMT, having touched an intra-day high of $38.95. US crude was up 31 cents at $36.62. "It's technical buying. It's pretty obvious shorts started to take profit when Brent prices dropped down to the 2008 low," said Tamas Varga, oil analyst at London-based PVM Associates.

The dollar was also near a seven-week low against a basket of currencies, encouraging the purchase of dollar-denominated oil contracts.
 

In the US, now the world's biggest oil producer, congressional leaders inched closer on Monday to agreeing to repeal a 40-year old US oil export ban. If the US started exporting large volumes of excess oil it would alleviate pressure on its swelling storage tanks. "We read any lifting of the US export ban as a significant structural change ... Lifting the ban could help to clear US crude oil stocks," said Olivier Jakob, an analyst at consultant Petromatrix.

OPEC Secretary General, Abdullah al-Badri, said on Tuesday that current low oil prices would not continue and may rise in a few months or a year.

Nevertheless, bearish sentiment remained strong with prices hovering around 7-year lows. An OPEC decision to abandon setting a production ceiling for the oil cartel, as well as a likely rise in Iranian oil exports after sanctions are lifted, fuelled a 16 percent sell-off since the OPEC meeting on Dec. 4.

Credit ratings agency Moody's said on Tuesday it had lowered its 2016 Brent crude oil estimate to $43 a barrel from $53 on the outlook for prolonged oversupply as additional production from Iran would offset any slowdown in U.S. output.

With OPEC pumping strongly and U.S. drillers producing large amounts of crude, the Brent/WTI premium has shrunk 28 percent in one week to $1.95 per barrel.

Oil markets usually see strong demand towards the end of the year as the northern hemisphere enters its peak winter heating demand season. Yet an unusually mild start to winter, in part due to the El Nino weather phenomenon, has limited demand.

Also looming is an expected increase in U.S. interest rates this week. Crude typically falls when the U.S. currency strengthens because it becomes more expensive for buyers paying in other currencies.