Oil prices edge up after 5% plunge; Brent holds above $53

Prices had touched fresh 5-1/2 year lows in an oversupplied market yesterday

Oil edged up on Tuesday, recovering from a 5% plunge in the previous session that saw prices touch fresh 5-1/2 year lows in an oversupplied market.

Growth in oil supplies showed no sign of abating, with output in Russia hitting a record high in 2014 and exports from OPEC's second largest producer Iraq the highest since 1980. Jitters over political uncertainty in Greece drove investors out of risk assets globally to safe haven bonds.

"It's building on the recent bearish supply demand output of oil, led originally by the OPEC meeting," said Mark Keenan who heads Asia commodities research at Societe Generale.

Brent crude gained 13 cents and was at $53.24 a barrel by 0226 GMT, after dropping to a low of $52.66 on Monday, its lowest since May 2009. US crude was up 7 cents at $50.11 after slipping below $50 for the first time since April 2009.

A recent slew of factors combined to push prices lower still, Keenan said, pointing to concerns about Greece, high output from Russia, Iraq and the United States and a stronger dollar.

In December, US oil inventories posted a substantial rise only for the second time in history, he said, confirming a supply glut at the world's largest oil consumer.

A rise in the dollar index for the sixth straight month in December has also made dollar-denominated oil more expensive, depressing prices.

Some economists expect cheaper oil to boost consumers' purchasing power and buoy the global economy, but the 50 percent plunge in oil prices since June has also raised deflationary fears.

"This is great news for motorists, but it presents a headache for policy makers, with the Fed keen to get their policy settings back to something more normal, and Europe keen to avoid a deflationary spiral," ANZ analysts said in a note.

A rebalancing of portfolios at major commodity indices which starts on Thursday may widen the spread between Brent and West Texas Intermediate, according to Societe Generale.

Up to $3 billion of Brent contracts will be bought versus $1.14 billion of WTI contracts, the bank estimated. Although the volumes are not significant, it could tilt sentiment towards a stronger Brent, Keenan said.