Oil rallies towards $35 as Iran welcomes output freeze

Crude oil prices shot up to levels around $35 a barrel today after Iran welcomed plans by Russia and Saudi Arabia to freeze output at January levels and a report showed a surprise drop in US inventories.

Today's gain comes after a more than 7 per cent surge in the previous session.

North sea Brent futures rose 38 cents to $34.88 a barrel in early morning trade, after closing 7.2 per cent higher in the previous session.

Benchmark US sweet light crude gained 69 cents at $31.35 a barrel.

While Iranian oil minister Bijan Zanganeh met counterparts from Venezuela, Iraq and Qatar on Wednesday, he did not commit to any capping of output, although he welcomed the move by both Opec and non-Opec producers to cut output.

Market also gained support after the American Petroleum Institute, an industry group, said US crude stocks fell by an unexpected 3.3 million barrels last week.

Oil has collapsed from levels above $100 a barrel seen in mid-2014 due to excess supply, arising mainly from increasing shale gas production in the United States combined with unrestricted production by both Opec and non-Opec producers.

While oil is now in excess supply and the market is extremely volatile, oil producers cannot press Iran to cap its output at this juncture, when it is barely out of the sanctions regime.

So long as Iran keeps pumping more oil, the freeze in oil production by other major producers will not have any great impact on an oversupplied market, say analysts.

Iran used to export about 2.2 million barrels per day (bpd) of crude before 2012, which had since dropped to about 1.1 million bpd after sanctions imposed by world powers to curb Tehran's nuclear programme cut oil shipments. Iran is unlikely to freeze output at current levels.