Oil mixed as market ponders whether crude has bottomed out

[February 29, 2016]  By Henning Gloystein

SINGAPORE (Reuters) - Brent crude futures edged higher on Monday, adding to strong gains last week, on rising hopes the market has bottomed out though analysts warned it would still take a long time to clear a huge global glut.

Brent futures  were trading at $35.28 per barrel at 1042 GMT (05:42 EST), up 18 cents from their previous close.

Since Feb. 11, the last time Brent was below $30, the crude benchmark has risen some 17 percent, although prices are still a fraction of the $115 per barrel seen only 20 months ago.

U.S. crude futures <CLc1> were weaker, weighed down by record American crude inventories, dipping 12 cents to $32.66 a barrel, after gaining about 27 percent since Feb. 11.

"There is still a lot of downside risk ... but the U.S. crude market seems to have passed the worst point and crude runs should start creeping higher, taking pressure off inventory levels," said Richard Gorry, director of JBC Energy Asia.

"The latest data on U.S. production is also supportive as it indicates that the low prices are finally having an impact," he said.

U.S. producers cut the number of rigs drilling for oil for a 10th straight week to the lowest since December 2009, data showed on Friday, which analysts expect will lead to an output fall of 600,000 barrels per day (bpd) this year.

"The total oil rig count is now falling below that required to sustain oil production and as a result production levels are beginning to fall," brokerage Banchero Costa said.

Morgan Stanley said a potential Russian-Saudi agreement to freeze output at January levels could also drive prices up. President Vladimir Putin called a meeting with top managers of Russia's leading oil producers on Tuesday.

A 10-day outage of a major pipeline from the Iraqi semi-autonomous region of Kurdistan to Turkey was also supporting prices in Europe. Turkey said over the weekend repairs on the 600,000 barrel-per-day link would take more time.

Morgan Stanley cautioned that a global production overhang estimated at 1 million to 2 million bpd was still massive and was accompanied with a "deceleration in demand growth".

Trading data, however, suggested shifting sentiment. The amount of open positions in U.S. crude contracts betting on a further fall in prices has fallen more than 17 percent since mid-February to the lowest level in 2016.

At the same time, financial traders have raised sharply their bullish bets on oil after talk of a global production freeze, signs of falling U.S. shale crude output, as well as growing gasoline demand.

"There are tentative signs the worst may be over for commodities, at least judging by the pick-up in investor sentiment," Barclays said.

(Additional reporting by Keith Wallis; editing by Tom Hogue and David Clarke)

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