In contrast to the expected decrease in supply, OPEC's monthly crude output increased by 1.32 million b/d in December, according to the latest OPEC monthly bulletin. However, if one discounts the cartel's first contribution from new entrant Angola - with output of 1.47 million b/d - official production from the established members was still down by 150,000 b/d.

Analysts attributed the price recovery to a number of factors, particularly US President Bush's announcement of an early plan to double the capacity of the US Strategic Petroleum Reserve (SPR). He wants to increase it to around 1,500 million barrels over the next 20 years in a move that is likely to cost Washington about $50,000 million. Allied with the reports that the US was beginning to replenish the 10 million barrels taken out of the SPR following Hurricane Katrina, as well as market rumours that China had itself begun to increase reserves, the news sent a positive signal to traders.

The recent colder weather, in the US and Europe, also encouraged some of the markets' more bullish elements, particularly after the unseasonally warm December and early January.

Not all the week's signals would have acted to drive up demand and prices, according to Paris-based International Energy Agency analyst Julius Walker. 'Our information is that the OPEC 10 [which excludes Iraq] has actually carried out cuts of about 665,000 b/d since September,' he says. 'This is nowhere near the amount they committed to and might be one reason why OPEC's statements have had relatively little effect on prices recently.'

Another downward pressure on prices is the seasonal period of refinery maintenance. The weekly reports of US-based Energy Information Agency (EIA) have shown a fall in refinery use of about 650,000 b/d since the start of the year as repairs and upgrades are carried out. The implied drop in demand will act to take some pressure off the market. 'Although it means less refined product is available, the concomitant fall in crude consumption will have a greater effect on prices in the short term,' Walker says.

Weekly stocks data issued by the EIA on 24 January shows that the slowdown in refinery runs have pushed up US crude stocks (excluding the SPR) by 700,000 million barrels - another downward pressure on prices.