By Barani Krishnan and Dmitry Zhdannikov
NEW YORK/LONDON (Reuters) - Oil prices jumped 3 percent on Tuesday, recouping the previous day's loss as colder weather encouraged buyers, but traders said prices remained under pressure due to slowing global demand and abundant supplies from OPEC members.
After settlement, industry group the American Petroleum Institute (API) reported a weekly rise of almost 3 million barrels in U.S. crude inventories, not the draw expected by many analysts and traders. [API/S]
Global oil benchmark Brent and U.S. crude's West Texas Intermediate (WTI) futures settled up more than $1 a barrel, after weather forecasts showed the United States may get some cold winter temperatures following an unusually balmy autumn.
Oil prices gave much of the day's gains after the API report.
Brent finished up $1.17, or 3.2 percent, at $37.79 a barrel. About 40 minutes after the API numbers, Brent was up only 76 cents at $37.38
WTI closed up $1.06, or 2.9 percent, at $37.87. After the API numbers, WTI was up only 52 cents, at $37.33.
Analysts polled by Reuters poll had forecast that U.S. crude stockpiles fell 2.5 million barrels last week. The U.S. government's Energy Information Administration will issue official inventory numbers on Wednesday. [EIA/S]
U.S. heating oil, also known as Ultra Light Sulfur Diesel (ULSD), partly fed Tuesday's gains in crude, rising nearly 4 percent to above $1.13 a gallon. ULSD and natural gas, another heating fuel, have rallied this week on cold weather expectations. [NGA/]
Many traders and analysts expected prices to remain under pressure, noting that global oversupply was expected to grow in 2016.
"Fundamentals remain very bearish," ING Bank analyst Hamza Khan said.
Brent and WTI remain more than two-thirds below their mid-2014 prices, depressed by abundant U.S. shale oil supplies and the decision by the Organization of the Petroleum Exporting Countries to pump near record volumes of crude to safeguard their market share.
On Monday, leading OPEC producer Saudi Arabia announced plans for spending cuts and non-oil revenue raising methods to manage a record state budget deficit while state-owned oil firm Saudi Aramco pumps away.
World oil production this year has exceeded demand by 2 million barrels per day at times. In 2016, Iran is expected to add its exports to the mix after Western sanctions on its oil come off.
"Iran is gearing up to flood the market with 500,000 bpd within weeks of sanctions being lifted," noted Ole Hansen, head of commodity strategy at Saxo Bank.