NON-OPEC:  A BP oil platform in the North Sea, about 160km east of Aberdeen, Scotland. The discovery of North Sea and Alaskan oil caused a shift from monopolistic to competitive oil pricing. Picture: AFP PHOTO/POOL/ANDY BUCHANAN
A BP oil platform in the North Sea. Picture: AFP PHOTO/POOL/ANDY BUCHANAN

NEW YORK — Oil soared on Thursday after a Russian official said Saudi Arabia had proposed that oil-producing countries cut output by up to 5% each amid a massive supply glut in the world market that has depressed prices for a year and a half.

The comments initially sent Brent crude up more than 8% to almost $36 a barrel and US crude up nearly 8%, cresting just below $35.

The price gains later moderated a little, and as of 3.09pm GMT, Brent futures for March delivery, two days ahead of expiry, were up $1.50, or 4.5%, at $34.60 a barrel. US crude was up $1.39, or 4.3%, at $33.69 per barrel.

Russian Energy Minister Alexander Novak announced the proposed cuts on Thursday. The reduction would amount to about 500,000 barrels a day of cuts by Russia, a major non-Opec producer.

If implemented, the output reductions could help ease a supply glut that has caused oil prices to fall more than 60% since mid-2014. Prices hit their lowest level for more than 12 years last week.

Mr Novak said on Thursday that it was reasonable to discuss the situation on the oil market and that Opec was trying to organise a meeting with other producers next month.

Also supporting the price surge were comments by a senior Gulf Opec delegate that Gulf countries and Saudi Arabia are willing to cooperate on any action to stabilise the oil market.

The market has rallied over the past three days on the possibility that Opec and non-Opec producers could come together for a coordinated production cuts to offset oversupply.

But analysts and market watchers have been skeptical, saying it was unlikely a deal would emerge, as Iran, which has boosted oil exports after the lifting of sanctions, looks to recover its market share.

"It’s technicals controlling this market. Then you get the fundamental news that comes out, scares the market, the shorts jump and that’s when you see $35 being tested," said Bill Baruch, senior market strategist at in Chicago.

Short covering has been a major driver of the recovery in oil prices from the lows they hit last week, after speculators unwound some of the record-high bearish positions they had racked up over the last six months.