OIL rose yesterday on expectations OPEC will maintain output levels and the US Federal Reserve will cut interest rates again to help stimulate the economy of the world's top energy consumer.
US crude settled up 28 cents at US$90.99 a barrel, rebounding strongly off the session low of US$88.78. London Brent crude rose 48 cents to US$91.38 a barrel.
Crude edged higher alongside US stocks as investors bet that the Federal Reserve would slash interest rates for the second time in a little more than a week to prevent the housing slump from tipping the economy into a recession.
Oil prices fell early after the US government reported that new single-family home sales tumbled in December to the lowest rate in nearly 13 years. Worries that a US recession could hit oil-demand growth have helped deflate crude from record peaks over US$100 in early January.
"With that weak (housing) number the Fed might be more inclined toward a half-point rate cut in addition to the three quarter point last week, which will further weaken the dollar and probably prop up the economy a bit, both of which will be bullish factors for the oil market," said Rob Kurzatkowski, futures analyst with optionsXpress.
"I think the oil traders are a little bit skeptical about the eoncomic conditions, and OPEC is always a wild card later on this week when they meet."
Many experts expect OPEC will maintain output levels when it meets on Friday in Vienna despite consumer nation calls for more oil to bring down prices.
Nigeria's oil minister yesterday said prices were not being influenced by supply and demand, echoing recent comments from other OPEC ministers but adding he was concerned about the effect of high prices on consumption.
ECONOMIC WOES
The housing report added to concerns about the health of the world economy which have weighed on oil prices by dimming the outlook for fuel demand.
Oil fell sharply early last week as growing concern over the US economy rattled global equity markets, but rebounded on Thursday as US legislators and the White House hammered out a US$150 billion stimulus plan.
Still, wider economic worries have sent some crude oil speculators to seek out safer investments.
"I think perhaps (funds) are trying to find safer bets with maybe the grains or some of the soft commodities which have underperformed the metals and petroleum markets," said Kurzatkowski.
US regulator data on Friday showed NYMEX crude oil speculators slashed their bets on rising prices in the week to Jan. 22 to their lowest since mid-December.
"It shows the large speculative funds reducing aggressively their net length exposure on futures through a combination of long liquidation and fresh short positions," said Olivier Jakob at Petromatrix.
A Reuters poll of analysts ahead of weekly US government inventory data forecast a 2.1-million-barrel rise in crude stocks, a 1.9-million-barrel draw in distillate inventories and a 2-million-barrel build in gasoline stockpiles.