Crude oil recovers off lows but glut keeps lid on gains

By Simon Falush

LONDON (Reuters) - Oil recovered from earlier lows on Tuesday but remained well below $50 per barrel under pressure from a market supply glut and concerns about the demand outlook.

Brent crude futures were up 40 cents at $49.19 by 1257 GMT, but gains were kept in check by Russian production hitting a post-Soviet peak and a weaker outlook for demand from China.

U.S. crude futures were up 31 cents $46.53 per barrel, after falling in the previous session on higher stockpiles.

Bjarne Schieldrop, chief commodities analyst at SEB in Oslo said that an absence of fresh negative news had brought some latent buying interest into the market.

"There are so many bullish views out there that oil will come off the bottom and move higher and that non-OPEC oil production will fall, and some are looking for an excuse to buy," he said.

Yet an expected dip in U.S. oil production as a result of low prices is unlikely to significantly dent the market's supply glut, which is seen at more than 1 million barrels per day.

"Our framework suggests that (U.S.) production would drop by 35,000 barrels per day in 2016 at the current rig count under our well deferral scenario, more than the 20,000 barrels per day year-on-year decline estimated a week ago," Goldman Sachs said in a note.

However it added that even in the United States there are indications that production could rise.

"A rapid draw-down of the observed backlog of uncompleted wells could lead to higher production later this year and in 2016," it said.

U.S. crude oil stockpiles likely rose by 2.7 million barrels last week, growing for a sixth consecutive week as supply outstrips demand, a Reuters poll showed. The American Petroleum Institute (API) will issue its preliminary inventory data on Tuesday before official numbers on Wednesday from the U.S. government.

Olivier Jakob at Swiss-based research group Petromatrix said that the expectation of some inventory draws at the Cushing, Oklahoma, oil hub may be supporting the oil price.

(Additional reporting by Henning Gloystein in Singapore; editing by Jason Neely and Louise Heavens)