US crude settles up $1.06, or 2.88%, at $37.87 a barrel

Oil prices jumped over $1 a barrel on Tuesday, as prospects of colder weather in coming weeks inspired buying a day after prices slid 3 percent, but slowing global demand and abundant supplies from OPEC members kept energy markets bearish.

Global oil benchmark Brent and U.S. crude's West Texas Intermediate (WTI) futures rose more than 2.5 percent each.

The two benchmarks have generally been in an uptrend over the past week as weather forecasts indicated the United States may get some cold winter temperatures following an unusually balmy autumn.

Expectations of a drawdown last week in U.S. crude inventories fed the rally. A Reuters poll suggested that stockpiles fell 2.5 million barrels last week ahead of inventory reports from the American Petroleum Institute on Tuesday and the government-run Energy Information Administration on Wednesday.

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WTI futures settled at $37.87 a barrel, up $1.06, or 2.88 percent. Brent gained $1.27, or 3.5 percent, at $37.91 per barrel, less than $2 above an 11-year low of $35.98 reached last week.

U.S. heating oil, also known as Ultra-Low Sulfur Diesel (ULSD), rose nearly 4 percent to above $1.13 a gallon, leading the energy complex higher and rising with natural gas, another heating fuel.

"I would suspect today's activity is further furled by the short-covering in ULSD from the smattering of cold weather," said David Thompson at Powerhouse, an energy-focused commodities broker in Washington D.C.

But on a global level, traders and analysts said the global oil glut would persist into 2016.

"Fundamentals remain very bearish," said ING Bank analyst Hamza Khan, noting that Tuesday's rebound came amid low trading volumes.

Brent and WTI remain more than two-thirds below their mid-2014 prices, depressed by abundant U.S. shale oil supplies and the decision by the Organization of the Petroleum Exporting Countries to pump near record volumes of crude to safeguard their market share.

Saudi Arabia and Iraq have added extra barrels to the market over the course of 2015 and the world's production has at times exceeded demand by over 2 million barrels per day this year.

On Monday, leading OPEC producer Saudi Arabia announced plans for spending cuts and non-oil revenue raising methods to manage a record state budget deficit while state-owned oil firm Saudi Aramco pumps away.

Jaap Meijer, managing director and head of research at Arqaam Capital in Dubai, said the Saudi budget showed Riyadh was taking steps to weather a prolonged lull in oil prices.

"We do not expect Saudi to cut production in 2016 and expect them to continue with their current policy of defending market share," Meijer said.

The global oil glut is expected to worsen in 2016 as Iran has pledged to ramp up exports once Western sanctions on it are lifted.

"Iran is gearing up to flood the market with 500,000 bpd within weeks of sanctions being lifted, while the ceasefire in Libya may also add extra barrels," said Ole Hansen, the head of commodity strategy at Saxo Bank.

Saudi Arabia and its Gulf allies the UAE and Kuwait have said they are counting on global demand growth to help rebalance the market over the course of 2016.

But there are increasing signs that demand might slow much sharper than expected after a spike in 2015.

"The demand situation does not support a return to a higher price environment," said derivatives exchange operator CME Group.

Oil analysts JBC Energy said that oil product demand growth in Europe turned negative in October for the first time in 10 months and that diesel and gasoline demand growth in China was also slowing.

In the short-term, colder weather entering Europe and North America following an unusually warm start to winter may provide a mid-term boost to prices.

On Tuesday, British wholesale gas prices snapped a months-long bearish spell with week-ahead prices jumping 13 percent on forecasts for colder temperatures. U.S. natural gas prices settled up 10 percent on Monday.