NEW YORK, Jan 6: Oil prices recovered some lost ground on Friday after sinking beneath $55 a barrel for the first time since 2005, due to mild winter weather in the United States.

Bargain-hunting set in after bearish investors pushed New York's benchmark contract to $54.90 in electronic deals -- the lowest level since June 14, 2005.

Light sweet crude for delivery in February recovered 72 cents in New York to close at $56.31 a barrel.

In London, Brent North Sea crude for February delivery gained 53 cents to settle at 55.64 dollars. Brent earlier touched $54.50, which was last seen on November 30, 2005.

The bears had won the week. The market was oversold, Alaron Trading energy broker Phil Flynn said.

There was a strong employment report, which might imply better demand in the US, he added.

US employers added a healthy 167,000 new jobs in December, the government said in a report Friday that was much better than expected on Wall Street.

And now we have some forecasters saying the weather might get a little colder, at least in the (US) midwest, Flynn said.

Unusually warm temperatures in the United States have driven oil futures down about 9.0 per cent since the start of 2007.

Expectations of a continuing mild US winter have sapped expected demand for heating fuel, Sucden analyst Michael Davies said earlier on Friday as prices were sliding.

There was also talk of funds bailing out of the market after suffering heavy losses recently. Crude prices have tumbled since the start of the New Year as the unseasonably warm weather has curbed demand for heating oil in the northeast United States, the world's most energy-hungry region.

The slump has extended from the end of last year despite efforts by the Organization of the Petroleum Exporting Countries (OPEC) to cut production to support prices.

The Department of Energy (DoE) revealed Thursday that US stockpiles of distillates, which include heating fuel, jumped by two million barrels to 135.6 million barrels in the week ending December 29.

That reading was much more than the rise of 850,000 barrels predicted by analysts.

The DoE added Thursday that crude inventories dropped 1.3 million barrels to 319.7 million last week -- which was less than the anticipated 2.0-million-barrel decline.

Oil prices have slumped from record highs above 78 dollars a barrel in July and August last year, when tensions in Iran, Nigeria and wider geopolitical frictions gripped the market.

Analysts said the drop in crude prices had come amid a broader decline in commodities -- including copper, gold and grains -- that has raised speculation that investment funds might be moving their money out of the market.

There's a general mood that commodities are overvalued, we've seen copper fall an awfully long way and we've seen a lot of liquidation in the stronger agricultural markets, said Barclays Capital analyst Kevin Norrish.

Alaron's Flynn said the market's direction now rests with the Opec cartel, which is implementing production cuts totaling 1.7 million barrels a day.

A lot's going to depend on what Opec does. Traders can't control the weather, he said.

—AFP