Oil prices rally, but hold under USD 30

London

In late afternoon deals in London, Brent North Sea crude for delivery in March advanced USD 1.92 to USD 29.80 a barrel compared with the close yesterday.

US benchmark West Texas Intermediate (WTI) for March rallied USD 1.55 to USD 29.90.

The US government's Energy Information Administration (EIA) reported that American crude inventories jumped 4.0 million barrels last week.

That was almost double market expectations for a gain of 2.2 million, according to analysts polled by Dow Jones Newswires.

However, industry body the American Petroleum Institute (API) had announced yesterday a larger gain of 4.6 million barrels.

"The build was effectively priced in after the API had reported an even larger increase," noted Gain Capital analyst Fawad Razaqzada.

"So, this was not the sort of news the bears were looking for, especially given the fact that stocks of distillates also fell.

"Still, the short-term bias remains bearish while oil prices trade below USD 30 a barrel on a daily closing basis."

Saxobank analyst Ole Hansen added that it was a "bearish report but the market was so ripe for a bounce".

The EIA said distillates, including diesel and heating fuel, sank one million barrels last week, confounding expectations for a rise of 800,000 barrels.

The weekly inventories report was published one day later than normal owing to a US public holiday on Monday.

So far this year, oil has taken a hammering, with both main contracts already down about one quarter on the vast global supply glut.

The commodity crashed further yesterday, with Brent striking USD 27.10 -- last seen in early November 2003.

And WTI struck USD 26.19 -- a level witnessed in May of the same year.

After a calamitous start to the year, oil prices have crumbled further this week after the International Energy Agency (IEA) warned that the market could "drown in oversupply" with the return of Iranian crude after the lifting of Western sanctions offsetting any output cuts from other countries.

Oil was slammed also by plunging global stock markets and a gloomy International Monetary Fund downgrade to world economic growth.