Oil prices rose 5% today to above $30 in its largest weekly rally in three months, as a cold front sweeping the US and Europe as well as firmer financial markets gave traders reason to cash in on record short positions. 

Crude futures were poised for their first weekly gain this year.

But analysts said there had been no shift in the fundamental backdrop of supply that far exceeds demand and swelling inventories of unwanted oil and oil products. 

Brent was up $1.58 at $30.83 a barrel this morning, off this week's 2003 low of $27.10 and heading for a more than 6% weekly gain. 

US crude was up $1.35 at $30.88 a barrel, set for a weekly rise of over 4%. 

In its monthly report earlier this week, the IEA said the oil market would produce more than it consumed for at least another year and risked "drowning in oversupply". 

That said, this week traders have bought a raft of derivatives that would give them the option to buy oil at $40 a barrel by the end of the year, suggesting that the worst of the rout may be over for now. 

Freezing weather conditions and snowstorms have gripped the US East Coast and parts of continental Europe, which has fed demand for heating oil and helped boost oil.

he cold weather in North America and Europe follows an extremely mild start to winter in large parts of the northern hemisphere, which had eroded oil consumption.

Crude prices have been hammered during the past three weeks, falling about 75% in 18 months on a supply glut, weak demand, overproduction and a slowing global economy. 

Adding to downside pressure is the return of Iranian crude into the market after the lifting of Western sanctions, offsetting any output cuts from other countries.