Oil prices gyrate as OPEC heavyweights head to Vienna

By Libby George

LONDON (Reuters) - Oil prices gained more than one percent on Monday in volatile trading after falling as much as 2 percent, recouping the losses as the market reacted to the shaky prospect of major producers being able to agree output cuts at a meeting on Wednesday.

Brent crude futures were 38 cents higher at $47.62 per barrel by 1238, after falling in early morning trade, clawing back losses and falling again.

U.S. West Texas Intermediate (WTI) crude futures also fluctuated widely before trading at $46.36, 30 cents higher.

Trading turned choppy after prices tumbled more than 3 percent on Friday as doubts grew over whether the Organization of the Petroleum Exporting Countries (OPEC) would reach agreement to help curb a global supply overhang that has more than halved prices since 2014.

Market watchers expected prices to remain reactionary until OPEC's Wednesday meeting offers the market a definitive answer as to whether the cartel would make cuts.

"There's going to be speculation until the meeting that makes prices very difficult to predict between now and Wednesday," said Hamza Khan, head of commodities strategy at ING. "Whatever small fundamental news we get will be drowned out by the shouting from Vienna."

On Sunday, Saudi Arabian Energy Minister Khalid al-Falih said the oil market would balance itself in 2017 even if producers did not intervene, and that keeping output at current levels could therefore be justified.

The statement stoked simmering disagreement between OPEC and non-OPEC crude exporters such as Russia over who should cut production by how much.

By Monday, OPEC was scrambling to rescue the deal, with analysts warning of a sharp price correction if they fail, and prices spiked as Iraq's oil minister said the country would cooperate with the group to reach an agreement "acceptable to all."

A meeting scheduled for Monday between OPEC and non-OPEC producers was called off after Saudi Arabia declined to attend, while concerns over the feasibility of a deal pushed the crude oil volatility index close to a nine-month high.

Others warned that even if some form of an output restriction is announced after producers meet in Vienna on Wednesday, the details matter greatly.

"Do not take an announcement of a headline cut of 1 million barrels per day (bpd) at face value. It could still imply an OPEC production level considerably in excess of 33 million bpd, depending on developments in Libya and Nigeria and the speed and rigour of compliance," David Hufton, managing director of brokerage PVM Oil Associates Ltd. said in a note.

Even if a cut is agreed, oversupply may not end soon.

The U.S. oil rig count rose by three last week, and Goldman Sachs said that "since its trough on May 27, 2016, producers have added 158 oil rigs (+50 percent) in the U.S.".

(Additional reporting by Henning Gloystein in Singapore and Yuka Obayashi in Tokyo; editing by Jason Neely/Ruth Pitchford)