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Oil up two percent on report of Saudi OPEC proposal, weaker dollar

Plants are pictured near an oil pump, owned by oil company Rosneft, in the settlement of Akhtyrskaya in Krasnodar region, southern Russia, December 21, 2014. REUTERS/Eduard Korniyenko

By Barani Krishnan

NEW YORK (Reuters) - Crude futures rose nearly 2 percent on Thursday, lifted by a weaker dollar and a report sourced to a senior OPEC delegate that Saudi Arabia would next year propose a deal to balance oil markets with non-OPEC help.

Short-covering after Wednesday's price slump of more than 4 percent also helped Brent and U.S. crude futures rebound.

Brent (LCOc1) was up 80 cents, or 1.8 percent, at $43.29 per barrel by 11:30 a.m. EST (1630 GMT), after rising more than $1 earlier in the session. The global crude benchmark hit a session low of $42.43 on Wednesday, just 20 cents above a 6-1/2 year low set in August.

West Texas Intermediate (WTI) (CLc1) was up 50 cents, or 1.3 percent, at $40.44 a barrel after its front-month January futures hit a contract low of $39.84 on Wednesday.

Gains were pared after a Saudi oil source speaking to Reuters described as "baseless" the report by industry journal Energy Intelligence that the kingdom hoped to balance the market with production limits.

Top crude exporter Saudi Arabia has resisted production cuts to support prices in an oversupplied market.

Oil ministers from the Organization of the Petroleum Exporting Countries are gathered in Vienna for a meeting on Friday, and crude futures have been volatile, reacting to their official statements or off-the-cuff remarks.

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

Analysts said investors were already hedging their bets on more concrete action at the next OPEC meeting, given the low potential for market-moving decisions this time.

Iran's oil minister also dismissed 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.

"In the absence of any Saudi gestures, the complex will quickly revert back to mounting commercial inventories and a strong U.S. dollar in forcing values lower next week, where our long standing $37.75 price target is apt to be achieved," said Jim Ritterbusch of Chicago-based oil consultancy Ritterbusch & Associates.

WTI hit a 6-1/2 year low of $37.75 in August.

The dollar tumbled to a one-month low (.DXY), making oil and other commodities denominated in the greenback more affordable to holders of the euro and other currencies. [USD/]

(Additional reporting by Karolin Schaps in London and Swetha Gopinath in Singapore; Editing by Marguerita Choy)