Russia said on Thursday that OPEC's largest producer Saudi Arabia, had proposed oil production cuts of up to 5 percent in what would be the first global deal in over a decade to help clear a glut of crude and prop up sinking prices.
Benchmark Brent futures LCOc1 jumped as much as 8 percent on Thursday to nearly $36 a barrel on news of the potential deal, which if implemented would immediately reduce surplus global output exceeding demand by 1 million barrels per day (bpd). Brent was trading at $34 a barrel at 1540 GMT.
A turnaround in oil's fortunes would be welcomed by oil-rich countries where the price collapse has caused budget squeezes and political turmoil with some even forced to devalue their currencies.
Russian Energy Minister Alexander Novak said Saudi Arabia had proposed that oil-producing countries cut production by up to 5 percent, which for non-OPEC member Russia - the world's top producer - would represent around 500,000 bpd.
"Indeed, these parameters were proposed, to cut production by each country by up to 5 percent," Novak said. "This is a subject for discussions, it's too early to talk about."
Saudi Arabian officials did not immediately comment on the proposal but a senior Gulf OPEC delegate said: "Gulf OPEC countries and Saudi Arabia are willing to cooperate for any action to stabilize the international oil market."
The proposal did not come directly from Saudi Arabia but rather from OPEC members Venezuela and Algeria, one Gulf OPEC source said.
Oil sank to 12-year lows of around $27 a barrel earlier this month, from as high as $115 some 18 months ago, because of a U.S. shale oil boom and a decision by OPEC to pump more to fight for market share against higher-cost producers.
But cheap oil has caused economic pain in many producer countries. In Saudi Arabia it has pressured the currency and opened up a record state budget deficit of around $100 billion.
In Russia, the rouble hit an all-time low, street protests have flared in Azerbaijan and investors are concerned about a potential debt default by OPEC member Venezuela.
PUTIN SILENT
Novak also told reporters there was a proposal for a meeting between the Organization of the Petroleum Exporting Countries and non-OPEC nations at the oil minister level and that Russia was ready for such talks.
"There are lots of questions about the oversight over cuts," he added.
Saudi Arabia has repeatedly called on non-members to contribute to output cuts if they want the organization to help producers deal with the oil glut with the world running out of space to stockpile unwanted crude.
Russia has long rebuffed the idea of cuts saying its fields were different from those in the Gulf and are difficult to shut.
President Vladimir Putin, who has yet to comment on the idea of joint cuts, sees the oil sector as an important bargaining chip in relations with the West that have become tense due to disagreements over Russia's annexation of the Crimea region and over the conflict in Syria.
"You have to take this seriously now. Key will be if Russia can deliver," said Gary Ross, a veteran OPEC watcher and founder of U.S.-based Pira group.
Brenda Kelly, head analyst at London Capital Group, said the proposed cuts were unlikely to happen.
"There have been attempts in the past that have come to (nothing). Saying something about the oil price and doing something are very different things, and it seems like panic given the price drop," she said.
A global deal could also be complicated by the position of OPEC member Iran. It wants to raise output after the lifting of Western sanctions which had curtailed production for years.
"Because of the international sanctions, we lost 1.1 million barrels per day of our exports. So we have to go back to our share of the market," a source familiar with Iranian thinking said on Thursday.