Oil Above $91 as Rate Cut Hopes Support Prices

Oil climbed above $91 as stock markets rose on hopes of a fresh U.S. interest rate cut, with forecasts that there will be a draw in U.S. distillate stocks and no change in OPEC output offering additional support.

Oil Pipeline
Oil Pipeline

U.S. light, sweet crude for March delivery was slightly higher, after rallying from session lows a day earlier to rise in tandem with U.S. stock market gains.

London Brent crude was up slightly, maintaining its recently-acquired premium to U.S. crude.

European shares rose to the day's highs, tracking gains in global markets on expectations the U.S. Federal Reserve would announce yet another aggressive cut in interest rates this week to ward off a recession.

A total of 18 out of 20 primary dealers polled by Reuters forecast the Fed to cut benchmark rates, with 14 expecting a 50 basis points reduction. The Fed cut rates by 75 basis points in an emergency move last week.

"Oil has been weighed down more by sentiment about the U.S. economy than by market fundamentals, which, if anything, are only supportive. Another Fed rate cut could take care of the sentiment," said Harry Tchlinguirian at BNP Paribas.

Worries that an economic recession in the United States could hit oil demand growth have helped pull back crude from record peaks above $100 in early January.

Hopes for a fresh rate cut were bolstered on Monday by data showing weaker-than-expected sales of new homes in the United States, stoking fresh fears of a recession.

"I hope they get it (half a percentage point) or more carnage will ensue," said Robert Laughlin of MF Global in London.

Recent weeks have seen speculators, blamed by some for being behind the oil rally of the past few months, cut their bets on rising oil prices. Data on Friday showed NYMEX crude oil speculators cut their net long positions in the week to Jan. 22 to their lowest since mid-December.

Oil has also found support from expectations the Organization of the Petroleum Exporting Countries will maintain output levels when it meets on Friday in Vienna, despite consumer nations' calls for more oil to bring down prices.

Iran's Oil Minister Gholamhossein Nozari was quoted in an Iranian newspaper saying that "there was no need to supply more oil as the market was supplied sufficiently and its conditions were stable."

Nigeria's oil minister on Monday said prices were not being influenced by supply and demand, echoing recent comments from other OPEC ministers, but added that he was concerned about the effect of high prices on demand.

A Reuters poll of analysts, ahead of weekly U.S. government inventory data, forecast crude stocks to rise by 2.1 million barrels and a 2.0 million-barrel build in gasoline stockpiles but distillate stocks are expected to fall by 1.9 million barrels.