Oil slips below $35 on glut, scepticism over talk of producer meet

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[February 04, 2016]  By Alex Lawler

LONDON (Reuters) - Oil slipped below $35 a barrel on Thursday after the previous session's 7 percent jump, pressured by oversupply and scepticism that Venezuela's effort to lobby crude producers for output cuts would succeed.

Crude gained some support from a weaker dollar, which fell further on speculation the Federal Reserve might not raise interest rates this year. A falling dollar tends to support oil and other dollar-denominated commodities.

Brent crude was down 30 cents at $34.74 a barrel at 6.49 a.m. ET. Prices have gained almost 30 percent since falling to $27.10, the lowest since November 2003, on Jan. 20. U.S. crude was up 11 cents at $32.39.

"It's a non-starter," Carsten Fritsch, analyst at Commerzbank, said of Venezuela's effort. "Without Saudi Arabia it would not make sense anyway."

Venezuelan Oil Minister Eulogio del Pino said on Thursday he had a "good and productive" meeting with his counterpart from Qatar, holder of the OPEC presidency in 2016, without giving more details.

On Wednesday, Iranian news agency Shana quoted Del Pino as saying that six producing countries, including OPEC members Iran and Iraq and non-members Russia and Oman, supported a producer meeting.

So far, none of OPEC's Gulf members, including top exporter Saudi Arabia, has publicly backed a meeting. But the effort remains potentially bullish, some analysts said.

"The parties are inching towards a coordinated production cut but there is still a long way to go," Tamas Varga of broker PVM said.

Gulf members were behind OPEC's 2014 shift in strategy not to cut production and instead let lower prices curb more costly-to-develop supply sources. A rise in OPEC output since then has swelled supply and contributed to the price decline.

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Underlining ample supply, U.S. crude inventories climbed by 7.8 million barrels last week to a record 502.7 million barrels, a government report showed.

Oil analysts remain largely bearish in their outlook, pointing toward persistent oversupply and slowing demand. Morgan Stanley on Thursday lowered its average 2016 Brent price forecast to $30 from $49 previously.

"We expect low oil prices to persist for longer than we previously assumed," the bank said in a report.

(Additional reporting by Henning Gloystein in Singapore; Editing by Dale Hudson)

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