Oil Prices Stabilize

Oil prices stabilized on Tuesday after a sharp selloff as a fall in the dollar triggered a bout of short-covering, but analysts said the market remained vulnerable to further falls.

Brent crude was up 35 cents a barrel at $55.29. US light crude oil was up 35 cents at $52.31, Reuters reported.

Rising oil prices through December encouraged investors to buy large volumes of crude oil futures contracts and many of these "long" positions are likely to be unwound unless the market stays strong, analysts and brokers say.

"I see this as a dead cat bounce," said Ole Hansen, the head of commodity strategy at Saxo Bank in Copenhagen. "Oil is unlikely to recover until the longs have been reduced."

Tamas Varga, analyst at London broker PVM, agreed. "We are seeing some short covering on the back of a weaker dollar. We might see stronger prices today after yesterday's big fall, but the market should weaken in coming days. I believe we are going lower."

Oil is priced in dollars, so a weaker dollar tends to encourage buying by consumers holding other currencies.

Both crude contracts fell more than $2 a barrel, or around 4%, on Monday on doubts that the Organization of Petroleum Exporting Countries and other key oil producers would cut output as promised to try to reduce a global oversupply.

OPEC members such as Saudi Arabia appear to be reducing production, but it is not clear whether other big producers such as Iraq will follow suit.

Iraq said on Tuesday it would raise crude exports from its southern port of Basra to an all-time high in February. Supplies are also increasing in North America.

In the United States, energy companies last week added rigs for a 10th week in a row, extending the drilling recovery into an eighth month as crude prices remained at levels at which many US drillers can operate profitably.