Brent crude oil prices rebounded on Tuesday from 12-years lows after data showed Chinese oil demand likely hit a record high in 2015, but the recovery was not expected to last amid warnings that the market would stay oversupplied this year. Analysts also attributed much of the bounce from under $28 a barrel 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 January 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. The Brent contract for March delivery rose 69 cents to $29.24 a barrel, up 2.4 percent, by 1:04 pm EST (1804 GMT). It traded as high as $30.24, rebounding from $27.67 on Monday, its lowest since 2003.
US crude fell 49 cents to $28.93 per barrel, after touching a high of $30.21. The US market was shut on Monday due to a public holiday. Traders said prices drew support from strong oil demand in China, the world's second-largest economy. Preliminary Reuters calculations based on government figures showed record oil consumption of 10.32 million barrels per day (bpd), up 2.5 percent from 2014.
The International Energy Agency, which advises industrialised 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. Global oil demand fell to a one-year low in the fourth quarter of 2015 and the market faces the prospect of a third successive year when supply will exceed demand by 1 million bpd, the IEA said.
"I think the biggest problem for crude at these levels is storage and supply, other things are ancillary. That's giving the people who are shorting it confidence," said hedge fund manager Michael Corcelli. However, one more big price fall was likely before a sustained or significant relief rally, Corcelli and others have said. The oversupply is set to worsen with the return of Iranian barrels to the market following the lifting of nuclear-related Western sanctions. Iran said it could increase oil output by 500,000 bpd and issued an order to start the ramp-up on Monday, but the IEA estimates a more measured rise of about 300,000 bpd of additional crude by the end of first quarter of 2016.