Crude oil rises as global equities rally

Crude oil rose from a three-month low as equity markets rallied on speculation that measures by US regulators will help moderate an economic slowdown.

Stocks in Asia and Europe climbed after talks to bailout US bond insurers, which yesterday lifted shares in the US for the first time in six days.

The Federal Reserve made an emergency interest rate cut two days ago to stave off a recession in the world's biggest energy user.

"What we're seeing is a short-term move higher in crude along with equities as a consequence of the Fed decision," said Hannes Loacker, an analyst at Raiffeisen Zentralbank Oesterreich in Vienna. "Oil came down substantially yesterday and this is essentially a counter-reaction."

Crude oil for March delivery rose as much as $1.19, or 1.4 percent, to $88.18 a barrel in electronic trading on the New York Mercantile Exchange. It traded at $88.02 at 10:50 a.m. London time. The contract fell 2.5 percent to $86.99 yesterday, the lowest close in three months.

Brent crude for March settlement climbed as much as $1.23, or 1.4 per cent, to $87.85 a barrel on London's ICE Futures Europe exchange. It was at $87.66 at 10:51 am London time.

The contract yesterday fell $1.83, or 2.1 per cent, to $86.62 a barrel, the lowest close since October 24. Futures reached a record $98.50 on January 3.

Oil is also drawing support from speculation the Organization of Petroleum Exporting Countries (Opec) will maintain production targets when it meets February 1.

"Prices may falter if the US Energy Department reports higher crude levels nationwide later today," said Raiffeisen Zentralbank's Loacker.

The Federal Reserve cut its benchmark lending rate by three-quarters of a percentage point to 3.5 per cent on January 22, citing increasing risks to the nation's economic growth. It was the first emergency move since the September 11, 2001 terrorist attacks.

The US consumes about a quarter of global oil output.

"The Fed's action shows a US recession is relatively near and this should have consequences for demand," said Loacker. "Investors are hesitant to put more money in the crude market as they fear a drop in demand."

US crude-oil stockpiles probably rose for a second week, gaining 1.5 million barrels at January 18, based on the median estimate from a Bloomberg survey of 16 analysts. Gasoline supplies probably climbed 1.4 million barrels last week, the 11th straight increase, even as refining rates were unchanged.