Oil hits new five-year low below $56 as supply glut persists

By Jessica Resnick-Ault

New York (Reuters) - Brent crude reversed early gains Friday to fall to a fresh post-2009 low below $56 (36 pounds) a barrel, as a glut of oil that has halved prices since June overshadowed investor positioning at the start of the year for a possible eventual recovery.

Brent has slumped to its lowest in more than five years as top exporter Saudi Arabia and other large Gulf producers continue to pump oil amid fast-growing U.S. shale oil output, despite pleas from other Organisation of the Petroleum Exporting Countries members to rein in production and shore up prices.

Iran's deputy foreign minister on Thursday urged its regional rival Saudi Arabia to take action to support oil prices, saying producer countries across the Middle East will be hurt unless the slump is reversed.

But Saudi Arabia has indicated it is prepared to ride out lower prices so it can retain market share.

"With no production cuts in the offing and a significant demand response years away, oversupply looks to be with us for a while," said RBN Energy analyst Rusty Braziel in a note. "$100 a barrel crude oil prices are in the rear view mirror, at least for a couple of years."

Brent crude for February delivery was down $1.21 at $56.12 a barrel by 1323 GMT, almost 5 percent below the day's high at $58.54.

Prices touched a post-2009 low of $55.48, having averaged around $110 a barrel between 2011 and 2013.

Front-month U.S. crude for February delivery was down 63 cents a barrel at $52.64, after reaching an intraday high of $55.11 shortly after the start of trading.

Traders said a number of buy orders would have been placed ahead of the start of trading in the new year, with some willing to bet prices will bounce this year as expensive oil projects are potentially shuttered or cancelled.

Prices faced additional pressure on signs that output from some of the world's largest oil producers continues to rise.

Iraq, OPEC's second-largest producer, said December exports hit their highest since 1980, averaging 2.94 million barrels per day, while output in Russia, the largest exporter outside OPEC, hit a post-Soviet record high in 2014.

In Libya, a senior oil official said a major fire in an oil storage tank at the North African country's largest crude export port had been extinguished.

The jump in oil prices earlier Friday was also capped by surveys showing weak factory activity in China and Europe in December, underlining tepid growth that has slowed oil demand and weighed on prices.

In the United States, benchmark oil prices took some support from data on Wednesday showing inventories fell by 1.8 million barrels in the last week, but an increase of 2 million barrels at the U.S. crude contract's delivery hub of Cushing, Oklahoma kept prices under pressure.

(Additional reporting by David Sheppard in London, Meeyoung Cho in Seoul and Jane Xie in Singapore; Editing by Jason Neely, David Holmes and Bernadette Baum)