January 28, 2016 / 12:21 AM / in 2 years

Oil up 3 percent on possible production cuts to remedy glut

NEW YORK (Reuters) - Oil prices were about 3 percent higher on Thursday after the Russian energy minister said Saudi Arabia had proposed that oil-producing countries trim output, which would be the first global deal in over a decade to help clear a glut that has depressed prices for over a year and a half.

A woman pumps gas at a station in Falls Church, Virginia December 16, 2014. REUTERS/Kevin Lamarque

Prices pared gains amid growing doubts over the deal to cut production by up to 5 percent after media reports said that delegates from the Organization of the Petroleum Exporting Countries had not yet heard of any plans for talks and that Saudi Arabia had not proposed cuts.

Crude had jumped as much as 8 percent after Russian Energy Minister Alexander Novak revealed the proposed reductions in output, which would amount to about 500,000 barrels a day of cuts by Russia, one of the largest producers outside OPEC.

But by 1:30 p.m. EST (1830 GMT), Brent LCOc1 was up 73 cents, or 2.2 percent, at $33.83 a barrel, after trading as high as $35.84.

U.S. crude CLc1 was up 98 cents, or 3 percent, at $33.28 per barrel, down from a high of $34.82.

The Russian minister also said that it was reasonable to discuss the situation in the oil market and that OPEC was trying to organize a meeting with other producers next month.

A senior Gulf OPEC delegate said that Gulf countries and Saudi Arabia are willing to cooperate on any action to stabilize the oil market.

Anticipation that OPEC and non-OPEC producers could coordinate production cuts has been around all week, and a closing gain on Thursday would be the third in a row - a first this year.

But analysts and market watchers have been skeptical, saying it was unlikely a deal would be struck, particularly as Iran, which has boosted oil exports after the lifting of sanctions, seeks to recover its market share.

“The rally this morning isn’t going to last,” said Bill Baruch, senior market strategist at iitrader.com in Chicago.

“It’s a buy-the-rumor, sell-the-fact affair until we see something substantial”

Short covering, which has been a major factor in oil’s recovery from last week’s lows, also pushed prices up. Speculators have raced to unwind some of the record-large bearish positions racked up over the last six months. [CFTC/]

“I haven’t seen any official comments from the Saudi Arabians yet, so I think the latest push is just another wave of covering by the spec shorts,” said Gene McGillian, Senior Analyst at Tradition Energy in Stamford Connecticut.

Still, in the absence of a deal, some said the oil market could recover of its own accord, particularly as U.S. shale producers show signs of capitulation.

The number of active rigs has been coming down and production is falling in the region. Oilfield services provider Baker Hughes Inc BHI.N, said it expected the number of rigs active globally to decline by as much as 30 percent in 2016.

Reporting by Devika Krishna Kumar and Jessica Resnick-Ault in New York; Additional reporting by Meeyoung Cho in Seoul, Osamu Tsukimori in Tokyo and Henning Gloystein in Singapore and Simon Falush in London; Editing by Alden Bentley and Bernadette Baum

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