World oil markets recovered on Tuesday, bouncing modestly from a 30-month low as some speculators decided prices had fallen far enough to permit bargain basement buying.

But dealers said the gains fell far short of a full-blown rally and warned markets could easily drop back into the danger zone.

They said the prospect of an imminent resumption of UN-monitored Iraqi supplies, faltering Asian demand and mild winter weather in Western markets would continue to weigh heavily on oil.

London futures for benchmark North Sea Brent blend moved back to $16.07 a barrel by 1630 GMT after slumping to a low of $15.55 early in the day, a low touched briefly in July 1995.

Speculators have been selling oil from a recent peak in early October of $21.75, cutting the cost of crude by 25%.

The dive gathered pace after the Organisation of the Petroleum Exporting Countries in early December announced a 10% rise in its output ceiling to 27.5 million barrels a day.

The weakening of crude oil prices has sent oil company stocks in the UK tumbling.

Share prices have also been depressed by the news that the Goldman Sachs oil team has reduced its oil price target for 1998 by $1 to $17.

The situation has been made more difficult by the United Nations' control on the sale of oil by Iraq.

Iraq suspended oil exports when the third six-month phase of the oil-for-food agreement came into effect on December 5, in protest at the slow UN authorization of imports of food and medicine.

Baghdad said it would only resume exporting oil once the UN approved a new distribution plan for humanitarian supplies.

Under the oil-for-food agreement launched in December 1996, Iraq is authorized to export $2bn worth of crude every six months to finance food and medical imports.

Baghdad has been under UN sanctions since its 1990 invasion of Kuwait.

It is estimated that each dollar fall in the oil price reduces Shell's earnings by 4% and those of BP by around 7%.

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