NEW YORK Oil prices jumped on Tuesday as investors hoped OPEC and non-OPEC producers were inching closer to a deal to reduce output amid one of the biggest supply gluts in decades, and news that U.S. oil company Hess Corp (HES.N)planned to slash capital spending.
Crude surged after the Organization of the Petroleum Exporting Countries renewed calls for rival producers to cut supply alongside its members, but Russia, seen as key to any deal, has resisted so far.
Iraqi Oil Minister Adel Abdel Mahdi said he saw "some flexibility" for a deal, an idea that has been repeatedly mooted and dismissed for more than a year.
Brent crude LCOc1 was up $1.78 at $32.28 a barrel by 2:00 p.m. EST (1900 GMT), rebounding from a decline at the start of the session. On Jan. 20, Brent reached as low as $27.10, its lowest since November 2003. On Tuesday, the contract touched a high of $32.72.
U.S. crude CLc1 was up $1.59, or 5.2 percent, at $31.93 per barrel.
"The need for a reduction in output is clear – as it has been to us for the past 18 months – but it remains uncertain whether Saudi Arabia and its allies within OPEC are ready to return to the bargaining table," Tim Evans, energy futures specialist at Citi Futures wrote in a note.
"Without Saudi Arabia on board, there's simply no deal and the market will be left to rebalance naturally as non-OPEC output declines, a slow and still painful process"
Despite a roughly 20 percent slide in oil prices this year, major OPEC producers have not cut investment plans. Instead, some plan to boost supply. An Iraqi official said Monday his country would do after it reported record production at the end of 2015.
OPEC's Gulf members, led by kingpin Saudi Arabia, have insisted OPEC will not cut production alone, which would cede market share to rivals.
David Hufton of oil brokers PVM reckons an agreement could bring about a $40-to-$60-a-barrel oil market.
U.S. companies, which have kept drilling in the face of falling oil prices, have started announce cut backs.
U.S.-based global oil producer Hess Corp (HES.N) said it planned to cut capital spending by 40 percent this year.
"I think you're going to see more capital spending cuts - it usually happens when prices start to bottom out," said Phil Flynn, analyst at the Price Futures Group brokerage in Chicago
"It's significant that the market is now reacting positively to positive news, which means some of the fear is now starting to subside."
Traders are also watching the dollar ahead of the U.S. Federal Reserve policy meeting that started Tuesday.
The strength of the dollar has pressured oil, making fuel more expensive for countries using other currencies.
If the Fed acknowledges that global markets are weak, it could reassure oil traders "that they can find a bottom" Flynn said. "The pieces are in place for at least a temporary bottom in oil"
The American Petroleum Institute, an industry group, releases its supply report at 4:30 p.m. EST (2130 GMT) and U.S. government data is due on Wednesday. [EIA/S]
A preliminary Reuters survey on Monday showed that U.S. commercial crude oil and gasoline inventories probably rose last week, while distillate stocks likely fell.
(Additonal reporting by Alex Lawler in London and Meeyoung Cho in Seoul; editing by David Evans, David Goodman and David Gregorio)
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