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US oil closes off lows on report of likely OPEC output cap deal

Oil prices closed off their session lows on Wednesday after OPEC sources said the group was likely to consider a new output ceiling at its forthcoming meeting, although many in the market still appeared skeptical about such a deal.

Brent crude futures were down 11 cents at $49.79 per barrel, after striking an intraday low at $48.65.

U.S. crude futures settled 0.18 percent lower, or 9 cents, at $49.01 a barrel, after plumbing to $47.75 earlier.

Reuters cited four OPEC sources as saying the Organization of the Petroleum Exporting Countries was likely to consider a production cap at its Thursday meeting.

An earlier report on Wednesday said Gulf OPEC members, including Saudi Arabia, were considering reviving the idea of coordinated oil output action by major producers, a senior OPEC source said.

Market participants have doubted such a deal was likely. Iran, a key OPEC member, has said it was determined to restore its crude exports to pre-sanction levels. Analysts had said the meeting on Thursday was likely focus on defending market share of individual OPEC members.

Saudi Arabia effectively scuppered plans for a global production freeze — aimed at stabilizing oil markets — in April. It said then that it would join the deal, which would also have involved non-OPEC member Russia, only if Iran agreed to freeze output.

Oil prices eased earlier on concern among traders that Middle East members of OPEC could continue to raise output.

"The OPEC meeting in Vienna on Thursday is unlikely to see a change in the policy of maintaining market share," said Oxford Economics lead economist Patrick Dennis, prior to the report that output cuts could be on the table.

"Saudi Arabia can claim its policy has been successful with oil prices recovering at the same time as non-OPEC oil production has fallen back, leading to a more rapid global market rebalancing than expected."

Many Middle East oil producers have ramped up deliveries to Asia in an aggressive fight for market share.

But on the demand side, Morgan Stanley said it was worried about China.

"Our economists worry that April data showed China may be slowing ... The oil demand data from China should reinforce those concerns," the bank said.

China's official factory activity gauge expanded only marginally in May, data showed on Wednesday, while a private survey showed conditions deteriorated for a fifteenth straight month.

Chinese port congestion and the impending refinery maintenance season will also weigh on crude imports over the next few months, analysts at BMI Research said.

A Reuters poll on Tuesday showed that most traders expect only limited potential for further price gains this year as global oversupply persists.

A rise of more than 20 percent, or almost $10 per barrel, since early April, has been powered largely by supply disruptions, especially in Africa and Canada, and as overall demand remains strong despite China's slowing economy.

— CNBC's Tom DiChristopher contributed to this story.