Oil prices bounce, but on track for steep weekly loss

By Libby George

LONDON (Reuters) - Brent crude edged higher after a sharp decline on Friday but was on track for the biggest weekly loss in more than two months as swelling stocks weighed on the market.

The International Energy Agency said there was a record 3 billion barrels of crude and oil products in tanks worldwide.

"The underlying sentiment is bearish," PVM analyst Tamas Varga said. "I don't see anything that could support prices rising in the long term."

Brent crude was trading 40 cents higher at $44.46 per barrel at 1249 GMT and was on track for a more than 5 percent weekly loss.

U.S. crude was 5 cents higher at $42.80 a barrel. The benchmark closed almost 3 percent down on Thursday on a 4.2 million barrel rise in U.S. crude inventories.

Some of the weakness could be down to technical factors, among them the expiry of the December Brent futures contract today, which can reduce liquidity and exaggerate price movements.

But there was a string of bearish indications on physical oil. The IEA, in its Monthly Oil Market Report, said that ballooning global stockpiles of crude and oil products could increase the overhang into next year.

"The current forecast is for a mild winter in Europe and the U.S. If it turns out to be true, bulging stock levels will add further pressure and oil market bears may choose not to hibernate," the IEA said.

Tens of millions of barrels of oil are also sitting on tankers looking for homes, threatening logistical paralysis.

Oil was caught in a commodities market drop on Thursday, with base metals also hit hard. The Thomson Reuters/Core Commodity CRB Index, a global benchmark for commodities, was near its lowest since 2002.

Crude markets have been dogged by oversupply, estimated between 0.7 million bpd and 2.5 million bpd being produced above demand, which has resulted in prices falling by almost two thirds since June 2014.

The glut is a result of high production by most major producers, including OPEC, Russia and North America.

On the demand side, an economic slowdown in Asia, led by the region's two biggest economies -- China and Japan -- has led to concerns about slowing consumption, though it has held up so far.

There were also signs that traders expect more price falls, with a soaring number of options taken to sell crude if prices fall to $40 or even $25 per barrel.

(Additional reporting by Henning Gloystein in Singapore, Editing by William Hardy and David Goodman)