Oil jumped 7 percent on Tuesday as traders sought to square their books ahead of the expiry of the February US futures contract. US February crude, which expires at the close of trade on Tuesday, rose $2.67 to $39.18 a barrel by 14:20 EST (1920 GMT), while March crude fell $1.39 to $41.18 a barrel. London Brent fell 48 cents to trade at $44.02 a barrel.
"There's a short-squeeze play going on ahead of February crude's expiration as there are still some traders heavy with shorts on this last trading day for the contract," said Phil Flynn, analyst, Alaron Trading, Chicago. "The market is also filling the gap between the February and March contract, one activity which we saw in the last two contract expirations and so we are seeing a narrowing of the February/March contract."
Slumping demand in the United States and Europe has helped send crude prices down from record highs over $147 a barrel struck in July, prompting producer group Opec to agree to a series of output cuts aimed at balancing the market and supporting prices. Kuwait has informed all customers of cuts in oil supply in line with Opec's December decision to reduce supply, state oil company Kuwait Petroleum Corporation said.
New Opec President, Botelho de Vasconcelos, told Reuters the group was fully enforcing its deepest ever oil supply curbs, adding Opec was unlikely to meet before its next scheduled meeting in Vienna in March. "The Opec cuts are stabilising the markets, even if they are not making it go up very much," said Christopher Bellew, broker at Bache Commodities in London.
China, one engine in the six-year commodity price rally that started 2002, was expected to release fourth-quarter GDP data this week that economists say will show a 7.0 percent growth, the slowest pace of expansion in nearly a decade for the world's third-biggest economy. Russian gas reached Europe via Ukraine for the first time in two weeks after Moscow and Kiev ended a contract row that cut supplies to about 20 European countries.