Oil prices bounce as cold U.S., EU weather buoys demand

By Roslan Khasawneh

SINGAPORE (Reuters) - Oil prices rose for a second session on Friday, moving further away from 12-year lows plumbed earlier this week, as cold U.S. and European weather as well as firmer financial markets gave traders reason to cash in on record short positions.

While crude futures on both sides of the Atlantic were poised for their first weekly gain this year, analysts cautioned that the bounce in prices was unsustainable given soaring inventories amid persistent overproduction.

U.S. crude was up 85 cents at $30.38 per barrel at 0532 GMT, almost $4 away from a 12-year low of $26.19 and headed for a more than 3 percent weekly rise.

Brent was up 98 cents at $30.23 per barrel, off its low of $27.10 and set for a more than 4 percent weekly gain.

The oil price gains helped soothe skittish markets, with MSCI's broadest index of Asia-Pacific shares outside Japan climbing 2 percent, coming off four-year lows hit in the previous session.

Oil prices drew support from freezing weather conditions and snowstorms that have gripped the U.S. East Coast and parts of continental Europe, lifting demand for heating oil.

However, meteorological data in Reuters shows that the current cold snaps will likely to be short-lived.

The cold weather in North America and Europe follows an extremely mild start to winter in large parts of the northern hemisphere, which had led to weaker-than-usual demand for oil and exacerbated a plunge in prices.

Traders said that a lot of people with open short positions in the market, which profit from falling prices, had decided to cash in when prices plunged 30 percent between the beginning of the year and the middle of this week. They have now flipped into buying at low costs, lifting oil futures.

"More stable global markets are likely to see speculative buying re-emerge in commodities that have suffered heavy losses in recent weeks. However, these rallies are likely to remain short-lived," ANZ bank said.

Analysts said the fundamental reason for low oil prices remained unchanged, with producers around the world pumping over 1 million barrels of crude every day beyond demand.

U.S. crude stocks rose 4 million barrels last week, versus analyst expectations for 2.8 million barrels build, according to the U.S. Energy Information Administration (EIA).

"At 486.5 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years," the EIA said.

(Editing by Joseph Radford and Himani Sarkar)