Oil prices stretch gains on cold US, European weather

Brent was trading up 24 cents at $29.49 a barrel, while US WTI was rose by 17 cents to $29.70 a barrel

Oil prices rose for a second session on Friday, moving further away from 12-year lows that it reached earlier this week, as cold US and European weather as well as firmer financial markets gave some traders reason to cash in on record short positions.

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

US West Texas Intermediate (WTI) crude futures were up 17 cents at $29.70 per barrel at 0206 GMT, around $3.50 away from a 12-year low of $26.19 hit earlier this week. Prices were headed for a 1% weekly rise.

WTI prices could test a resistance at $30.85 based on a Fibonacci retracement measured from the downtrend between January 4-20, said Reuters technical analyst Wang Tao.

International benchmark Brent was up 24 cents at $29.49 per barrel, off a 12-year low of $27.10 and set for a 2% gain for the week.

Oil prices drew support from freezing weather conditions and snowstorms that have gripped the US East Coast and parts of continental Europe like Germany, 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 the winter in large parts of the northern hemisphere that had led to weaker-than-usual demand for oil, exacerbating a plunge in prices earlier this year.

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 % 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, leaving storage tanks brimming.

US crude inventories rose 4 million barrels in the last week, compared with analyst expectations for an increase of 2.8 million barrels, according to the US Energy Information Administration (EIA).

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