Oil has bounced nearly two per cent, recouping some of the previous session’s heavy sell-off, on the growing prospect that the Organisation of the Petroleum Exporting Countries and allied producers would cut output at a meeting next month to prop up the market.

After a record 12 consecutive days of losses and the steepest one-day loss in more than three years, the oil market reversed course after Reuters reported that OPEC and its partners were discussing a proposal to cut output by up to 1.4 million barrels per day, a larger figure than officials had mentioned previously.

Brent crude was up $US1.03, or 1.6 per cent, at $US66.50 a barrel, after hitting a session high of $US67.63.

US crude futures rose 85 cents, or 1.5 per cent, to $US56.54 a barrel, after declining on Tuesday for a 12 consecutive sessions to the lowest since November 2017.

The price of the global benchmark Brent has fallen by more than 20 per cent since early October on concern about excess supply and slowing demand, one of the biggest declines since a price collapse in 2014.

‘The market has cratered over the last few weeks and the pop today is related to the chatter that producers could cut up to 1.4 million bpd in 2019,’ said Gene McGillian, vice president of market research for Tradition Energy in Stamford, Connecticut.

‘Maybe some of the fears of extra supplies and reduced demand have finally been priced into the market, but I wouldn’t say that a bottom has set in yet.’

The relative strength index for both contracts remained below 30, a technical level often regarded as signalling a market that has fallen too far.

The selling leading up to Wednesday was further exacerbated as traders unwound long oil-short natural gas trade, market participants said.

As oil crashed from the high touched in October, natural gas futures soared as much as 56 per cent during that time to a four and a half year high.

Moreover, financial firms hedging the risk incurred by selling put options to oil producers, generating added downward pressure when prices fall toward option strikes, Goldman Sachs said in a note.

Oil markets are being pressured from two sides: A surge in supply from OPEC, Russia, the Unites States and other producers; and increasing concerns about a global economic slowdown.

‘This market is attempting to find a price bottom following an unprecedented 12 consecutive days of decline,’ Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

‘Although the supply surplus is still relatively modest, the market is focusing on the dynamic of expansion in the overhang that will need to show signs of reversal before a price bottom can be established.’

In its monthly report, the Paris-based International Energy Agency said the implied stock build for the first half of 2019 is 2 million bpd.

The IEA left its forecast for global demand growth for 2018 and 2019 unchanged from last month at 1.3 million bpd and 1.4 million bpd, respectively, but cut its forecast for non-OECD demand growth, the engine of expansion in world oil consumption.

US crude oil output from its seven major shale basins was expected to hit a record 7.94 million bpd in December, the US Department of Energy’s Energy Information Administration said on Tuesday.

The surge in onshore output has helped overall US crude production hit a record 11.6 million bpd, making the United States the world’s biggest oil producer ahead of Russia and Saudi Arabia.

Most analysts expect US output to climb above 12 million bpd in the first half of 2019.

The rise in US production is contributing to higher stockpiles.

Ahead of industry storage data on Wednesday and the government’s report on Thursday, analysts forecast a 3.2 million-barrel rise in crude inventories, the eighth straight weekly build.