Oil prices steadied not far off their 11-year lows on Tuesday, under pressure from slowing global demand and abundant supplies, with Saudi Arabia signalling no change to its oil policies and Iran preparing to ramp up exports.

International benchmark Brent and US WTI crude prices edged up after falling 3 percent on Monday to trade below $37 per barrel on Tuesday.

Brent stood less than a dollar away from its 11-year low of $35.98 reached last week. Both crude benchmarks are down by more than two-thirds since prices started tumbling in June 2014 on the back of a US shale oil boom and Opec’s kingpin Saudi Arabia decision to pump near record volumes of oil to stifle higher-cost rival producers.

On Monday, Saudi Arabia announced plans to shrink its record $98 billion state budget deficit with spending cuts, reforms to energy subsidies and a drive to raise revenues from taxes and privatisation. "The budget likely signals no near-term changes to energy or foreign exchange policies," analysts from Bank of America Merrill Lynch said in a note. 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.

The glut is expected to further aggravate in 2016 as Iran is pledging to add at least another 0.5 million bpd into the market when and if Western sanctions on the country are lifted. "The pre-Christmas rally in crude oil has ground to a halt as the countdown to the New Year starts. 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 - a loss of 170,000 barrels per day (bpd) year-on-year - for the first time in 10 months and that diesel and gasoline demand growth in China, one of the strongest price supporters of the past year, 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. MDA Weather Forecasts said its 6-10 day forecast showed the likelihood of colder weather for the US East Coast, a key region for heating fuel demand.

For Europe, Reuters meteorological data shows that continental average temperatures are expected to fall from almost 6.5 degrees Celsius, 4 degrees above the seasonal norm, towards more typical levels of 2 degrees Celsius by January 1st. One change in oil trading has been that WTI flipped to a premium versus Brent this month after the United States lifted a decades-old ban on exporting U.S. crude oil. Analysts expect this price structure to stay in place, should global markets suffer from slowing demand and a continuing oil surplus while domestic supplies in the United States tighten.

“The ongoing low oil-price environment points furiously towards a rough 2016 for US producers,” oil analysis firm ClipperData said, with some estimates pointing to a 500,000 bpd fall in US production in 2016.

Reuters