Oil prices rise as market clings to hopes of an output cut

*Oil prices rise.

*Oil prices rise.

28 January 2016 — Crude-oil prices traded in and out of positive territory on Thursday, as investors balanced oversupply concerns with speculation that large producers may be inching closer to a collective cut.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in March CLH6, +0.34% swung from a loss to a rise of 22 cents, or 0.7%, to $32.51 a barrel. March Brent crude LCOH6, +1.27% on London’s ICE Futures exchange rose $0.39, or 1.2%, to $33.51 a barrel.

Oil prices rose overnight, buoyed by news that Russia and Saudi Arabia may consider discussing a cut in current output. However, a Kremlin spokesman later said Russian oil officials hold frequent talks with their foreign counterparts, but it was too early to talk about any coordinated actions, state news agencies reported.

“At this stage, the oil market is extremely information and data sensitive, so any whiff of positive news will move the market. But the fact is, the fundamentals remain extremely weak,” said Gao Jian, an energy analyst at SCI International.

Prices faltered in the Asian trading day as traders digested the U.S. energy department’s report that crude stockpiles in the country grew by 8.4 million barrels in the week ended Jan. 22.

While many analysts attribute the jump to seasonal maintenance at refineries rather than shrinking global demand, the data nevertheless points to a greater imbalance between supply and demand. The latest growth puts total U.S. crude inventories at 494.9 million barrels, levels not seen in about 80 years.

“Demand can only grow so much. Without a significant cut in production, it will be difficult for oil prices to rebound,” said a Singapore-based oil trader.

The sustained collapse in prices has led oil companies around the world to slash capital expenditure and production targets to protect cash flows, including in China.

“Chinese majors have collectively reduced capex by 20% in 2015 so declines [in production] are likely to step up sharply next year,” said consulting firm Energy Aspects.

Chinese state-controlled energy giant China Petroleum & Chemical Corp. said Wednesday that oil and gas production slipped nearly 2% in 2015. Last week, China National Offshore Oil Corp. said it expects a net production of 470 to 485 million barrels of crude this year, compared with an estimated 495 million barrels in 2015.

Nymex reformulated gasoline blendstock for February RBG6, +2.69% — the benchmark gasoline contract — fell 67 points to $1.0390 a gallon, while February diesel traded at $1.0225, 27 points lower.

ICE gasoil for February changed hands at $297.50 a metric ton, up $5.50 from Wednesday’s settlement.

*Jenny W. Hsu; Timothy Puko & Brian Spegele contributed to this article – MarketWatch.

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