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Oil recovering from the possibility of deepening OPEC supply cuts

UNITED STATES (OBSERVATORY NEWS) — Oil prices rebounded on Tuesday, a day after falling to their lowest levels in more than a year, buoyed by hopes for more crude production cuts from OPEC and its allies to offset demand damage in the outbreak of a coronavirus.

By 1645 GMT, Brent crude was up 65 cents, or 1.2 percent, at $ 55.10 a barrel, while US West Texas Intermediate rose 52 cents, or 1 percent, to $ 50.63.

The recovery comes after a decline over the past two weeks due to concerns about the impact of the Chinese virus on the global economy. On Monday, crude prices fell to their lowest in more than a year.

Informed sources told Reuters on Monday that OPEC +, which is made up of the Organization of Petroleum Exporting Countries and allies like Russia, is considering cutting crude production by an additional 500,000 bpd.

But the group could face an uphill battle to impose further cuts just shortly after it agreed to the current cut and given the uncertainty over the timeline of the virus crisis.

“Any changes in the supply policy … will be decided on the basis of their assessment of the time span of the effect of the coronavirus,” said Harry Schlingorian, global director of commodity strategy at BNP Paribas, speaking to the Reuters Global Oil Forum.

“If the group of producers deems that the outbreak will be contained, and that its repercussions will fade soon after, as happened with SARS, they have the option not to move a finger and be patient with the environment of declining prices until the return of demand.”

Price gains were limited by the statements of Russian Energy Minister Alexander Novak, who said he was not sure that it was time to tighten production restrictions.

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