Oil edges up as multi-year lows trigger buying

The dollar also slipped to a seven-week low against a basket of currencies, incentivizing the purchase of dollar-denominated oil contracts.

In the United States, now the world's biggest oil producer, congressional leaders inched closer on Monday to agreeing to repeal a 40-year old US oil export ban.

If the United States started exporting large volumes of excess oil it would alleviate pressure on its oil swelling storage tanks.

"We read any lifting of the US export ban as a significant structural change...Lifting the ban could help to clear US crude oil stocks," said Olivier Jakob, an analyst at consultant Petromatrix.

OPEC Secretary General, Abdullah al-Badri, said on Tuesday current low oil prices would not continue and may rise in a few months or a year.

Nevertheless, bearish sentiment remained strong with prices hovering around 7-year lows. An OPEC decision to abandon setting a production ceiling for the oil cartel, as well as a likely rise in Iranian oil exports after sanctions are lifted, fueled a 16 percent sell-off since the OPEC meeting on Dec. 4.

Credit ratings agency Moody's said on Tuesday it had lowered its 2016 Brent crude oil estimate to USD 43 a barrel from USD 53 on a the outlook for a prolonged oversupply.

With OPEC pumping strongly and US drillers keep producing large amounts of crude, the Brent/WTI premium has nearly halved over the last week to USD 1.8 per barrel. Oil markets usually see strong demand toward year end as the northern hemisphere enters its peak winter heating demand season. Yet an unusually mild start to winter, in part due to the El Nino weather phenomenon, has limited heating demand.

Also looming large is an expected increase in US interest rates this week. Crude typically falls as the US currency strengthens since it becomes more expensive for buyers paying in other currencies.