Oil down, declines cut by report OPEC mulling output cap

By Barani Krishnan

NEW YORK (Reuters) - Oil settled down on Wednesday on technical resistance at around the $50 a barrel mark, with the market retracing most earlier declines after OPEC sources said the group will likely consider a production curb at its forthcoming meeting.

Reuters cited four OPEC sources as saying the Organization of the Petroleum Exporting Countries was likely to discuss an output ceiling at its meeting in Vienna on Thursday. Three sources said the ceiling needs to be set substantially above 30 million barrels per day and lengthy discussions may be required.

A lower output ceiling would represent a major compromise for OPEC, which failed to agree on a production cap for the first time in years at its last meeting, in December.

Many market participants remain doubtful there will be such a deal since OPEC member Iran is determined to restore crude exports to pre-sanction levels. Analysts instead expect OPEC members to focus on defending individual market share.

Still, the possibility of production quotas returning to OPEC helped crude oil prices shed most of the day's declines.

"If they get a quota in place, that would certainly be bullish for oil, given that no surprises were expected at all from this meeting," said Phil Flynn, analyst at the Price Futures Group in Chicago.

"It will also mark a diplomatic gesture by the Saudis after Doha," Flynn said. OPEC failed to agree to an output freeze at an April meeting in Doha, Qatar, after Saudi Arabia insisted Iran join the plan.

U.S. crude's West Texas Intermediate (WTI) futures settled down 9 cents at $49.01 a barrel, off a session low of $47.75.

Brent futures fell 17 cents to settle at $49.72, after plumbing $48.65 earlier. The session high was $50.

Technical resistance at the $50 level has kept a steady pressure on crude futures. Brent and WTI breached the level on Thursday, hitting seven-month highs, before returning to the $3 to $5 trading range they had been trapped in.

That trading range has persisted since prices rose $10 a barrel, or 20 percent, between early April and May, boosted by supply outages in Canada, Venezuela, Nigeria and Libya.

Investors will watch for preliminary data on U.S. crude stockpiles at 4:30 p.m. EDT (2030 GMT) from trade group American Petroleum Institute. A Reuters poll estimates a 2.7 million barrel decline in U.S. crude stocks last week.

Official inventory data from the U.S. Energy Information Administration is due on Thursday.

(Additional reporting by Henning Gloystein in Singapore; Editing by David Gregorio and Steve Orlofsky)