Oil rebounded above $66 a barrel on Tuesday, with bargain hunting traders ending a six day retreat after Iran sounded a softer note on its atomic programme and OPEC agreed to keep production steady for now.

U.S. light crude for October delivery leapt 60 cents to $66.21 a barrel by 8:19 a.m. after falling 64 cents on Monday and losing more than 4 percent last week. London Brent crude rose 71 cents to $65.26.

Oil fell on Monday to below $65 for the first time since March, causing consternation within OPEC which left open the door for its first formal output cut in two and a half years and calling into question the future of the four-year rally.

Analysts said the dissipation of risk premia attached to Iran and the hurricane season had prompted traders to re examine fundamentals, which looked softer now that summer had ended.

Crude is looking very overvalued and oversupplied as we move into the autumn when (refinery) turnarounds are planned in the United States and in Europe, said Mike Coleman, a partner with Singapore based hedge fund Aisling Analytics.

Hints of slowing economic growth from the United States and China have also contributed to speculative selling across the commodities complex. The Reuters/Jefferies CRB Total Returns Index fell to its lowest since December 2005 on Monday.

The past week's retreat oil's longest losing streak in nearly three years has hotted up debate over whether the four year rally has room left to run now that prices have fallen sharply from their record highs above $78 a barrel this summer.


Although analysts remain deeply divided on the upside, many agree that the extent of the fall now depends on OPEC deciding what price it is ready to defend without risking the wrath of consuming nations who fear sustained high oil may dent growth.

Fundamentally, there's more downside to go, probably to the point where OPEC decides to cut supply, Coleman said.

Iran's oil minister said he wanted to see OPEC's basket of crudes holding above $60 a barrel, about $64 for U.S. crude, while other officials have in the past mooted a $50 to $60 range.

The Organisation of the Petroleum Exporting Countries (OPEC) which has been at pains to avoid naming a new target price decided Monday to maintain its current production limits at 28 million barrels per day (bpd), but said it could meet again before the end of the year to review the situation.

Saudi Oil Minister Ali al Naimi, OPEC's most influential voice, said oil demand would remain healthy next year, but OPEC's own economists now say there will be less need for crude from the cartel, which pumps a third of the world's oil.

Geopolitical risk in Iran, the world's fourth largest oil exporter, appeared to be easing.

U.S. Secretary of State Condoleezza Rice on Monday held out the possibility of the United States joining talks with Iran if it temporarily suspends its nuclear programme, as an EU diplomat said Tehran might be willing to do.

Iranian negotiator Ali Larijani offered a two month freeze on uranium enrichment during weekend talks, the diplomat said. Rice's comments suggested Washington was looking for a way to begin negotiations as long as Tehran halted its work first.

Weather risks were also downgraded as the Atlantic hurricane season, well into its peak, has yet to inflict any significant damage on oil infrastructure on the U.S. Gulf Coast. The latest, Hurricane Florence, bashed Bermuda on Monday but was still forecast to stay away from the North American mainland.

Investment bank Morgan Stanley said this week that prices had now peaked, but other analysts were unconvinced.

Goldman Sachs, which has the second-highest forecast for U.S. prices next year at $75.50 a barrel, said the sell off was overdone as the market had priced in the easing risks of disruptions, and that lower pump prices may help revive demand.

The sharp decline in retail prices will likely continue to support demand even as economic activity slows, it said.