Political Tension Lifts Oil, but Glut Weighs

Risk premiums rise after Paris terror attacks; analysts see oil prices remaining weak.

Oil prices edged up on Monday because of heightened political and security tensions after Friday's deadly attacks in Paris claimed by Islamic militants, but a global glut of crude supplies capped rises.

France carried out large-scale air strikes against Islamic State sites in Syria overnight, giving oil market investors reason to step up buying activity after a week in which crude benchmark prices fell as much as 8 percent.

"Some risk premium is factored into the market after the terror attacks in Paris. We had an oversold market, so it is a technical recovery as well," said Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg.

Front-month Brent crude prices were up 55 cents, or 1.2 percent, at $45.02 a barrel at 1143 GMT. U.S. futures traded 75 cents higher, or nearly 2 percent, at $41.49 a barrel.

Last week, oil prices saw their biggest weekly losses in eight months as swelling storage of crude on both land and sea weighed.

An OPEC delegate from a Gulf producing country said he believed that in the mid-term oil prices could get some support due to rising tensions especially if the international community takes more steps to reduce smuggling of oil and hits oil facilities under Islamic State's control in Syria and Iraq.

But oil and other commodities could also come under renewed downward pressure on fears the attacks will further slow the global economy.

Many analysts also continue to believe prices will remain subdued due to abundant stocks of oil and slowing economic growth.

"Our outlook is skewed negative into (the first half of next year). Macro headwinds remain, crude oil inventories are building," Morgan Stanley (MS) said.

Oil prices have dropped more than 60 percent since June last year as high production and inventories have coincided with an economic slowdown in Asia, particularly in China but also Japan, which slipped back into recession in the third quarter.

"The fact that both crude oil and combined crude and product stocks are near record levels is a reason for concern," Barclays bank said in a research note.

Baker Hughes data showed the first rise in the U.S. oil rig count in 11 weeks last Friday, while the International Energy Agency said there were a record 3 billion barrels of crude and oil products in tanks worldwide.

The oil in storage is comparable to a months' worth of global oil consumption.

By Karolin Schaps