NEW YORK Oil rose more than 5 percent on Tuesday, with Brent going above $32 a barrel, on hopes OPEC and non-OPEC producers were inching closer to a deal to reduce output in the face of one of the biggest supply gluts in decades.
The Organization of the Petroleum Exporting Countries has 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 was up $1.63 at $32.13 a barrel by 12:23 p.m. EST (1723 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 $32.24.
U.S. crude was up $1.51, or 5 percent, at $31.85 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 back on investment plans. Instead, some plan to boost supply, as 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.
Tuesday's rally was limited, with oil prices also pressured by weakness in Asian stock markets. China, the No. 2 oil consumer, posted an 11.9 percent drop in rail freight volume in 2015, feeding worries of a global economic slowdown.
"Yet for at least this week, even with an expected increase in supply, we should see storage fall in Cushing Oklahoma as Canadian oil sands producers start to cut output," said Phil Flynn, analyst at the Price Futures Group brokerage in Chicago.
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.
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.
Traders are watching the dollar ahead of the U.S. Federal Reserve policy meeting starts later on Tuesday, the first since the central bank raised interest rates in December.
The strength of the dollar has also pressured oil, making fuel more expensive for countries using other currencies.
(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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Updated Date: Jan 26, 2016 23:15 PM