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Oil Rises Above $35 on Weak dollar, Potential Producer Meeting

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A pump jack stands idle in Dewitt County, Texas January 13, 2016. REUTERS/Anna Driver

NEW YORK (Reuters) – Oil prices rose for a second straight day on Thursday, with Brent trading above $35 a barrel on signs of possible talks aimed at a cut in global production, while a weaker dollar offset concern about ample supply and record-high U.S. inventories.

Crude added to the previous session’s 7 percent jump after an Iranian official was quoted as saying Tehran supported a meeting between OPEC and other oil producers. That raised hopes they could take action to support prices despite widespread scepticism in the market.

Iran’s role in any potential deal to rein in production is critical, as it appears determined to boost production and gain market share after the lifting of sanctions.

The dollar weakened further on speculation the Federal Reserve might not raise interest rates this year. A falling dollar tends to support prices of oil and other dollar-denominated commodities.

“Headlines continue to fly about an OPEC/non-OPEC meeting. We are currently in an environment of elevated rumours,” said Olivier Jakob, oil analyst at Petromatrix. “Without a fresh development Brent might face some difficulty to fly above $40.”

Brent (LCOc1) futures rose 39 cents, or 1.1 percent to $35.43 a barrel, by 10:55 a.m. EST (1555 GMT). Prices have gained about 25 percent since falling on Jan. 20 to $27.10, the lowest since November 2003. U.S. crude (CLc1) rose 89 cents to $33.17 per barrel, a 2.8 percent gain.

After falling as much as 11 percent over two days, oil soared 7 percent on Wednesday. In part fuelling the week’s roller-coaster ride was the sudden liquidation of a $600 million leveraged fund bet on falling prices, market sources said.

While the likelihood of a coordinated production cut is unlikely, the need is evident, analysts say.

“Many people are hoping that oil prices go higher, especially producing countries whose budgets are under stress,” said Andrew Lipow of Lipow Oil Associates.

“They’re in dire financial straits and want to take action in order to increase the price of crude oil, but the problem is that I don’t believe every OPEC and non-OPEC member is willing to all cut their proportionate share.”

So far, none of OPEC‘s Gulf members, including top exporter Saudi Arabia, has publicly backed a meeting.

However, on Wednesday, Iranian news agency Shana quoted Venezuelan Oil Minister Eulogio Del Pino as saying that six producing countries, including OPEC members Iran and Iraq and non-members Russia and Oman, supported a producer meeting.

Venezuela’s repeated calls for an emergency meeting have fallen on deaf ears in recent weeks.

Gulf members were behind OPEC‘s 2014 shift in strategy not to cut production and instead let lower prices curb more costly-to-develop supply sources. A rise in OPEC output since then has swelled supply and contributed to the price decline.

Evidence of the rising supply glut mounted when U.S. crude inventories (USOILC=ECI) climbed by 7.8 million barrels last week to a record 502.7 million barrels, according to a government report.[EIA/S]