A late burst of buying saw oil recover from negative territory where it wallowed for much of the day, dipping to a low of $10.63 a barrel.

Oil's late strength was attributed to a stealthy rally on US products markets with gasoline leading the way.

London Brent blend futures for March loading last traded 12 cents firmer at $11.12 a barrel after shrugging off the bearish tone.

IPE Brent crude futures had opened strongly in London on overnight oil gains sparked by a report of Iraqi troop movements near the border with Kuwait.

But early excitement proved to be shortlived after New York markets failed to react positively to the news.

The brief rally was a result of a report from the BBC that Baghdad was moving large numbers of troops and tanks towards Kuwait and the southern no-fly zone, a security corridor imposed by the West.

An Iraqi opposition group inLondon said that the buildup had started more than a month ago and was aimed mainly at quelling internal opposition as well as intimidating Kuwait.

Hamid al-Bayati, of the Supreme Council for the Islamic Opposition in Iraq (SCIRI), said the buildup began in mid-December and included surface to air and surface to surface missiles.

"It's difficult to know what he is going to do because he is unpredictable," Bayati, the group's London spokesman, told Reuters in reference to Iraqi President Saddam Hussein.

"These troops have been used to suppress any kind of popular uprising. But we cannot rule out that some of these forces might be used against neighbouring countries following the latest Iraqi statements."

The military governor of Basra region, General Ahmad Ibrahim Hamash, told the BBC he was reinforcing his defences and had orders to shoot down all military planes.

The United States and Britain heavily bombed Iraq last month to punish Baghdad for what they said was failure to cooperate with UnitedNations inspectors.

Iraq also this month slammed the small oil-producing state for receiving SCIRI leader Mohammad Baqer al-Hakim, saying he was in the country to plan sabotage against Baghdad.

Bayati, whose organisation is seen by Western diplomats in the Gulf as an influential opposition group in the Shihite south of Iraq, said the movements filmed by the BBC had been going on since the start of the Moslem holy month of Ramadan.

Oil prices were helped on Thursday by weekly US data showing lower crude and heating oil stockpiles.

But with oil producers showing no sign of any further move to reduce supplies prices remain well below last year's lowly $13.34 average for Brent, itself down 30 per cent from $19.30 in 1997.

Mexico's energy minister Luis Tellez said on Wednesday that Opec member Venezuela's lack of full compliance with agreed output cuts was stalling attempts by oil producers to further cut world oil supply.

Venezuela, Mexico and Saudi Arabia last year spearheaded a total 3.1 millionbarrels per day reduction to world oil supply in a bid to raise crude prices.

Caracas has acknowledged it still has not met fully its own pledged reduction while a row over how to measure Iranian supply cuts also has still to be settled.