NEW YORK (Reuters) -- Oil prices rebounded from early losses on Monday after Saudi Arabia denied a report it was discussing an increase in oil supply with OPEC and its allies.
Brent crude futures for January settled at $87.45, shedding 17 cents. U.S. West Texas Intermediate (WTI) crude futures for December settled at $79.73 a barrel, falling 35 cents ahead of the contract's expiry later on Monday.
The more active January contract was down 7 cents at $80.04 a barrel.
Both benchmarks had plunged by more than $5 a barrel early, hitting 10-month lows, after The Wall Street Journal reported an increase of up to 500,000 barrels per day will be considered at the OPEC+ meeting on Dec. 4.
Oil then retraced its losses after Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said the kingdom is sticking with output cuts and not discussing a potential oil output increase with other OPEC oil producers, state news agency SPA reported, denying the Journal report.
"It turned the whole situation upside down in a matter of minutes," said John Kilduff, partner at Again Capital in New York. "The Saudis giveth and then they taketh away."
The Organization of the Petroleum Exporting Countries and its allies, together known as OPEC+, recently cut production targets and the energy minister of de facto leader Saudi Arabia was quoted this month as saying the group will remain cautious.
Releasing more oil amid weak Chinese fuel demand and U.S. dollar strength would have moved the market deeper into contango, encouraging more oil to go into storage and pushing prices still lower, said Bob Yawger, director of energy futures at Mizuho in New York. "That's playing with fire."
Expectations of further increases to interest rates have buoyed the greenback, making dollar-denominated commodities like crude more expensive for investors.
The dollar rose 0.9% against the Japanese yen to 141.665 yen, on pace for its largest one-day gain since Oct. 14.
"Apart from the weakened demand outlook due to China's COVID curbs, a rebound in the U.S. dollar today is also a bearish factor for oil prices," said CMC Markets analyst Tina Teng.
"Risk sentiment becomes fragile as all the recent major countries' economic data point to a recessionary scenario, especially in the U.K. and eurozone," she said, adding that hawkish comments from the U.S. Federal Reserve last week also sparked concerns over the U.S. economic outlook.
New COVID case numbers in China remained close to April peaks as the country battles outbreaks nationwide.
The front-month Brent crude futures spread narrowed sharply last week while WTI flipped into contango, reflecting dwindling supply concerns.