Oil rises on report of Saudi proposal to balance market next year

By Karolin Schaps

LONDON (Reuters) - Oil prices rose from near-2015 lows on Thursday after a report sourced to a senior OPEC delegate said Saudi Arabia would next year propose a deal to balance oil markets with non-OPEC help.

A Saudi oil source told Reuters the report in industry journal Energy Intelligence was "baseless".

Benchmark Brent crude futures were up 90 cents, or 2 percent, at $43.39 a barrel by 1447 GMT. U.S. crude was trading 46 cents higher at $40.40 a barrel, after sinking below $40 on Wednesday.

Saudi Arabia, which has so far resisted any market intervention to prop up oil prices, has proposed that the Organization of the Petroleum Exporting Countries (OPEC) cut output by 1 million barrels per day (bpd) next year, Energy Intelligence reported.

An OPEC production cut would only go ahead if non-members such as Russia, Mexico, Oman and Kazakhstan commit to joint action, the senior delegate was cited as saying. OPEC ministers are gathering in Vienna for a policy meeting on Friday.

"Oil prices are rising because of the talk that Saudi Arabia will propose a global deal to balance the market," Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg, said.

Iran's oil minister was quick to dismiss the possibility of limiting Tehran's production ramp-up once Western sanctions are lifted. Non-OPEC member Russia said it saw no need for Moscow to cut oil production.

OPEC sources and analysts said the reported Saudi proposal would be difficult to agree, as Iraq is struggling to balance its budget despite soaring output and Iran has long argued its market share was stolen by rivals during the years of sanctions.

"?It is very difficult to cut 1 million bpd collectively. The Saudis do not want to change their previous talk. No cut without cooperation," a Gulf OPEC source told Reuters.

Eugen Weinberg, head of commodities research at Frankfurt-based Commerzbank, told Reuters' Global Oil Forum Saudi Arabia's reported proposal may have been a strategy to check responsiveness.

"I would not be surprised if the proposal was floated by Saudi Arabia just to test the market and the other OPEC members," he said.

"The test was successful to show there is no readiness yet for higher discipline."

Because of low expectations for market-moving decisions in Vienna on Friday, other analysts said investors will closely watch the date to be picked for the next OPEC meeting.

"A next meeting in March will be taken as more supportive than a next meeting in June," said analysts at consultancy Petromatrix.

Heightened conflict in the Middle East also supported oil, with the start of British military intervention in Syria against Islamic State and its jets bombing the al-Omar oil fields.

Despite Thursday's gains, the oil market remains heavily oversupplied, underscored by an unexpected weekly buildup in U.S. inventories. .

Oil product supplies are increasing as warmer-than-usual weather in the U.S. northeast, a major market for heating oil, limits demand.

A strong dollar, lifted by the prospect of a Federal Reserve rate hike, has kept oil prices weak, as it makes greenback-dominated contracts such as crude futures more expensive for those holding other currencies.

(Additional reporting by Swetha Gopinath in Singapore; Editing by David Holmes and Mark Potter)