Oil rose by more than six per cent as a cold snap boosted demand for heating oil across the United States and Europe, according to Crude futures on Friday.
Crude futures were poised for their first weekly gain this year, analysts said.
But there had been no shift in the fundamental backdrop of supply far exceeding demand and swelling inventories of unwanted oil and oil products.
The oil price is set for a 16.8 per cent fall in January, its largest slide in the first month of the year in at least a quarter century.
“There is no fundamental justification whatsoever to think that the current downtrend is changing,” said PVM Oil Associates analyst, Tamas Varga.
“All one has to do is look at this month’s report from the IEA to see that, especially the first half of this year, the market is going to be oversupplied,” he said, referring to a report by the Paris-based International Energy Agency.
Brent was up $1.92 at $31.17 a barrel, off this week’s 2003 low of $27.10 and heading for a more than 6 per cent weekly gain, while U.S. crude rose $1.59 to $31.12.
In its monthly report on Tuesday, the IEA said oil supply would outpace demand for at least another year and the oil market risked “drowning in oversupply”.
Freezing weather conditions and snowstorms have gripped the US East Coast and parts of continental Europe, feeding demand for heating oil and helping to boost oil.
Threatening oil’s ability to build on its gains was the comparatively mild rally that took place in the longer-dated Brent futures contracts.
Prices for oil for delivery in one year’s time rose by a mere 2 per cent on the day, compared to the near-7 per cent rise in prices for prompt delivery, narrowing the difference, or contango, between the two.
“This is not a sustainable rally given the current surplus … Either the longer-dated contracts need to be lifted along with the front-end rally or the front-end rally needs to fade and fall back,” SEB analyst, Bjarne Schieldrop, said in a note.
