Oil cuts losses but analysts see no big rallies yet

By Amanda Cooper

LONDON (Reuters) - Oil futures pared losses on Wednesday, echoing a modest stock market recovery, but analysts said a surprise ballooning in U.S. inventories and little chance of the world's major producers agreeing to cut output would likely temper any rallies.

Fresh evidence of slowing growth in top commodities consumer China, along with caution before the outcome of the U.S. Federal Reserve's first policy meeting of the year, earlier knocked around $1 off the price of oil.

Senior OPEC and Russian officials on Tuesday stepped up vague talk of possible joint action to eliminate one of the largest oil surpluses in modern times, although few market watchers believed this would result in any cuts to output.

Brent crude was last down 26 cents at $31.54 a barrel by 1347 GMT, having hit a session low of $30.83, in lockstep with European equities edging off the day's lows.

U.S. futures fell 65 cents to $30.80 a barrel.

Oil has risen from last week's 2003 lows after speculators unwound some of the record-high bearish positions they had racked up over the last six months.

"There is dove-tailing of moves in oil with moves in equities that is happening and of course the equity markets, we've seen, are so prone to risk aversion," BNP Paribas global head of commodity strategy Harry Tchilinguirian said.

"Right now oil is buffeted between short-covering, cross-asset correlations and its own weak fundamentals."

Oil prices have fallen nearly 16 percent in January, bringing total losses since the start of the decline in mid-2014 to 77 percent.

U.S. crude stocks rose by 11.4 million barrels last week to 496.6 million, the American Petroleum Institute said, topping analyst expectations for an increase of 3.3 million barrels.

"The positive sentiment stemmed from strong U.S. corporate earnings and talk of OPEC and Russia considering production cuts. We consider the likelihood of any agreement between these parties as extremely low," ANZ said in a note.

That said, oil bulls are gradually starting to emerge, with this month's drop below $30.

The options market shows traders are buying up protection against a rise to at least $40 by the end of the year, and speculators have increased their bullish bets on the price through the futures market.

Three U.S. shale oil companies cut their 2016 capital spending plans more than expected in a bid to survive the $30-a-barrel oil price.

Marco Dunand, the head of Mercuria, one of the world's biggest trading houses, said the market was close to rebalancing. Famed oil bull Andrew Hall, head of Astenbeck Commodities, said the market was ripe for a jump.

(Additional reporting by Meeyoung Cho in Seoul; Editing by Dale Hudson)