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Oil rises on production cut speculation, pares losses in January

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January 31
8:07 PM 2016

Recouping over 25 percent of losses, oil prices rebounded on Friday on increasing expectations of production cut. Major oil producing nations may agree on production cuts to reduce oversupply situation and support oil falling oil prices. US Brent futures pared 6.8 percent losses and US crude recouped 9.3 percent losses during the week.  

Oil prices fell to 12-month low in January and the latest speculation about a possible deal on production cut has infused fresh support to oil prices. The firm trend on stock markets also supported the oil price. The weak US gross domestic Product (GDP) numbers are also giving hopes that US Federal Reserve may slowdown on interest rate hike. 

The four sessions of last week in January witnessed rally in oil future prices after a proposal from Organization of Petroleum Exporting Countries (OPEC) to reduce production boosted the market confidence, as reported by Reuters. Russia, a non-OPEC oil producing nation also said that there was a proposal from OPEC on production cuts.

Brent future LCOc1, which expired on Friday, rose 85 cents or 2.5 percent to close at $34.74 a barrel. The oil price touched $27.10 on 20 January indicating lowest since November 2003.  US crude CLc1 ended at $33.62 per barrel rising 40 cents or 1.2 percent. It showed high of $34.40 in the intra session. Brent rose 7.9 percent during the week and US crude gained 4.4 percent. 

Brent recouped 6.8 percent losses and US crude pared 9.3 percent losses in January. However, the latest news reports stating Iran may not join the production cut have started impacting the trading at the end of session. Brent futures rose over 25 percent since 20 January as they gained in four sessions in a row, according to CNBC

Russia has decided to visit the UAE and Oman to discuss further on oil production cut. The Crisis-hit Venezuela is also sending its minister to Russia and other OPEC nations to have detailed discussions on production cuts and price support.

Though oil futures gained for second week, analysts feel that these gains only impacted what has been another discouraging month for oil prices. The US benchmark fell over nine percent owing to oversupply of crude oil. The concerns about Chinese economy slowdown also further worsened the situation. Oil prices fell for third month suffering losses of about 28 percent, reports Market Watch.

John Kilduff, partner at Again Capital LLC in New York, said: "The market has rewarded these statements about the possibility of a deal, even though I think it's ridiculous. Iran and Iraq were determined to boost production and were unlikely to come together with Saudi Arabia to cut OPEC output. The Saudis have made no official statement on a deal. This is a rally on false hopes, unfortunately."

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