Oil hovers above $ 51 after tumble on Saudi comment

SYDNEY, Jan 17 (Reuters) Oil held above on Wednesday after falling more than 3 percent the previous session to the lowest level in 20 months, but investors were wary about taking short positions that would test the psychologically key mark.

U.S. crude futures for February rose 19 cents to .40 per barrel by 0245 GMT.

Prices touched .53 on Tuesday, the lowest level since May 26, 2005, after Saudi Arabia said OPEC production cuts were working well and there was no need for an emergency meeting of the producer group.

London Brent futures for the new front-month March contract was up 17 cents to .79.

''The market is quite nervous about taking positions after seeing so many days of sharp drops in oil prices. Many are getting out of the market and cutting their losses,'' said Tetsu Emori, an analyst at Mitsui Bussan Futures in Tokyo.

''The market is also a little reluctant to take a short position because they are not sure if prices would actually fall below the psychologically important line,'' Emori said.

Oil prices have fallen around 16 percent so far this year, in part due to warm weather in the U.S. Northeast, the world's top heating oil market.

Adding to the bearish news, the International Monetary Fund has revised down its 2007 estimate for global oil prices to .00 a barrel from a September forecast of .50, the fund's Managing Director Rodrigo Rato told Reuters on Tuesday.

Emori said he expected prices to drop further as the market remained strongly oversupplied and demand stayed weak.

''Prices spiked in 2005 and 2006 because of large amounts of speculative funds flowing into the market. But many investors are now looking at the fundamentals of demand and supply, instead of pure speculation. That's why prices have fallen sharply and will fall further,'' he said.

As colder weather reached the region, heating demand in the U.S. Northeast was forecast to rise above average early in the week, with Wednesday demand well above usual, private forecaster DTN Meteorlogix said on Tuesday.

But the coming of the cold was a little too late to radically change the recent fundamentals, analysts said.

Analysts polled by Reuters expect U.S. weekly oil statistics to show a build of 200,000 barrels in crude stocks last week, which would be the first rise in eight weeks, with imports rebounding from a steep drop the previous week. S]Distillate stocks were projected to have risen 1.5 million barrels, with gasoline seen rising 2.3 million barrels.

The data will be released on Thursday, a day later than usual due to a U.S. holiday on Monday.

REUTERS PV GC1238