Oil up slightly, but oversupply, strong dollar keep pressure on

By Simon Falush

LONDON (Reuters) - Oil gained slightly on Thursday but remained not far off an 11-year low, pressured by a relentless buildup in oversupply, and as the dollar strengthened after the U.S. Federal Reserve raised interest rates for the first time in nearly a decade.

Brent crude for February delivery, the front-month contract from Thursday, rose 26 cents to $37.65 a barrel by 1434 GMT, having lost 3.3 percent in the previous session.

A dip below $36.20 would be the lowest since July 2004. Some analysts said such a move in the run up to year-end looked likely.

"The price action is likely to remain violent, but the odds are on lower numbers," said PVM Oil Associates technical analyst Robin Bieber. "Stick with the trend. It is not advised to be long."

Government data showed a surprise increase in U.S. inventories on Wednesday, adding to a global glut that has contributed to a near 17 percent slump this month alone. Brent has tumbled from a high above $115 in June last year.

West Texas Intermediate (WTI) for January delivery, the front-month contract, was down 13 cents at $35.39. U.S. crude fell nearly 5 percent on Wednesday.

Another potential source of supply for international markets would be U.S. crude, should lawmakers vote to lift a ban on exports as early as Friday.

The likely lifting of the ban has seen Brent crude's premium to WTI shrink to below $1 per barrel. The premium was above $13 per barrel in March.

"OPEC countries are cutting price to get market share, and they'll have to do so even more if U.S. oil comes on to the international market," Jasper Lawler, analyst at CMC markets, said.

The Fed raised rates on Wednesday, a sign it believes the U.S. economy has largely overcome the 2007-2009 financial crisis. Higher U.S. rates typically support the dollar, making dollar-priced oil more costly for holders of other currencies and undermining demand.

The dollar added around 1 percent against a basket of major currencies.

Adding to the bearish global picture, OPEC producers see scant chance of a significant rise in oil prices in 2016 as extra Iranian production could add to the glut and the prospect of voluntary output restraint remains remote.

Goldman Sachs said it would take a further fall in oil prices to push OPEC into coordinated cuts in production to support prices.

"The one scenario where we could see OPEC cut output is one where fundamentals push prices down to the steep part of the cash-cost curve," the bank said in a note to clients. "Such a cut would occur at lower prices and for now the market needs to rebalance through low prices."

(Additional reporting by Aaron Sheldrick in Tokyo; Editing by David Evans and David Holmes)