TOKYO: Oil prices rallied on Tuesday in Asia after a three-day sell-off that saw the US benchmark sink back below $30 a barrel, but analysts warned the ongoing supply glut and world economic weakness will keep a lid on the commodity.
The pick-up in the two contracts also comes despite a rout across Asia equity markets fuelled by renewed worries about the global outlook while investors look ahead to the release of US stockpiles data this week.
Traders sent prices plunging Monday as talks between the oil ministers of Saudi Arabia and Venezuela bringing stability to oil markets came to nothing.
There had been hopes the Saudis would back a meeting of the OPEC producers group — of which it is the key member — but it was unwilling to do so.
OPEC has refused to cut output as it looks to maintain market share in the face of competition from US shale.
US benchmark West Texas Intermediate for March delivery sank 3.9 percent to $29.69 and Brent shed 3.5 percent to $32.88 Monday.
But on Tuesday WTI was up 1.0 percent at $30.01 and Brent gained 0.4 percent to $33.00 a day before the US releases official data on its reserves, which are already at their highest levels since 1930.
Crude prices have crashed more than 70 percent since mid-2014, hit by a perfect storm of overproduction, oversupply, weak demand, a slowing global economy and a strong dollar.
Added to that is the imminent arrival of Iranian output onto world markets after international sanctions linked to its nuclear programme were lifted.
“It s a particularly volatile and difficult time for oil,” Ric Spooner, a chief analyst at CMC Markets in Sydney, told Bloomberg News.
“The market will continue to be in a supply crunch period for the next few months. We have Iran back on, there s been no significant cut in US production and inventories are high, which means the downside pressure is there.