* Tax cuts seen boosting consumer spending, U.S. oil demand
* Technicals show prices may drop towards $87[]
* Coming Up: U.S. Initial jobless claims; 1330 GMT
(Adds context on U.S. tax cuts, technical trend for oil)
By Alejandro Barbajosa
SINGAPORE, Dec 9 (Reuters) - Oil rebounded towards $89 on
Thursday as the dollar weakened and some optimism returned to
stock markets in Asia on hopes that the extension of U.S. tax
cuts would boost consumption.
U.S. crude for January <CLc1> rose as much as 1 percent to
$89.20 a barrel and was up 55 cents at $88.83 a barrel at 0416
GMT. The front-month contract touched a 26-month high of
$90.76 on Tuesday and fell 41 cents on Wednesday, pulled lower
in part by concerns about a growing U.S. deficit.
ICE Brent crude <LCOc1> added 24 cents to $91.01.
The financial world is becoming split between investors
who are deeply concerned that a proposal from U.S. President
Barack Obama to extend tax cuts will worsen a budget
shortfall, and investors who are relieved that U.S.
authorities are trying to use fiscal and monetary medicine for
the economy.
Oil markets over the past 24 hours have shifted from
focusing on the first scenario to paying more attention to the
rosier picture painted by the second one.
"When you have rising stock markets, you have the wealth
effect; consumers feel richer so their pocket books open up.
That's also positive for oil demand," said Tony Nunan, a risk
manager with Tokyo-based Mitsubishi Corp.
"People are now more comforatable with the overall
economic picture. This is a buying opportunity."
A rising trend has been confirmed for U.S. crude from a
technical perspective, Nunan said, adding: "I thought that at
$90 it was going to struggle and it would become some
resistance, but it just whooshed through it."
The front-month contract on Tuesday for the first time
surpassed $89.84, the 50 percent Fibonacci retracement from
the July 2008 record of $147.27 to the December 2008 low of
$32.40. Although prices fell later in the day, the correction
was limited.
FOCUS ON CHINA RATES
A report that inflation in China in November was lower
than expectations of 4.7 percent in a Reuters poll also
reassured markets that an interest rate increase by the
world's second-largest oil consuming economy may not be in the
offing.
"The worry over that to me seems to be a little bit
unfounded. For me, that is the right thing to do, the concern
is that they would overdo it," Nunan said.
China's annual inflation in November is likely to have
been "a little bit" higher than October's 4.4 percent, but
will be lower than market expectations, the official
Securities Times reported, citing unnamed authoritative
sources. The statistics will be published on Saturday.
[]
The Standard & Poor's 500 Index on Wednesday closed at its
highest level since September 2008, while Japan's Nikkei
average on Thursday climbed to a fresh seven-month high.
A bigger-than-expected 3.8-million-barrel drop in U.S.
crude stockpiles last week also contributed to the gain in
prices.
Total U.S. crude and product stocks fell last week by 5.3
million barrels to 1.110 billion barrels, and are down 3
percent from 20-year highs in September, the Energy
Information Administration (EIA) said on Wednesday.
Total U.S. oil product demand over the past four weeks was
up 2.9 percent from the same period last year, with distillate
demand up 5.3 percent and gasoline demand down just 0.7 percent.
Still, inventories of refined products rose last week as
refineries produced more fuel, according to weekly data from
the EIA. Gasoline rose by 3.8 million barrels and distillates
by 2.2 million, despite colder-than-normal weather in the
Northeast.
"The market tends to ignore this kind of small picture
stuff when there is a bigger picture where the stock market is
strong or Chinese demand is strong," Nunas said.
Tighter supplies in the U.S., and oil prices near 26-month
highs, could come to bear on OPEC members who meet this week
to discuss whether current oil output is high enough to meet
demand as world economies rebound.
But the Organization of the Petroleum Exporting Countries
appears unlikely to raise oil supply limits to cap an oil
price rally when it meets in Quito on Saturday, with ministers
insisting world economic growth can hold up with crude at $90
a barrel. []
"My expectation is that OPEC will do nothing again. They
are doing their job," Nunan said.
Global oil demand is set to rebound to a record 86.7
million barrels per day (bpd) this year, 100,000 barrels
higher than in 2007, climbing further to 88.1 million bpd in
2011, Wood Mackenzie said in a statement on Wednesday.
The oil market's attention was set to turn to U.S. initial
jobless claims later on Thursday, before Chinese trade data
for November comes out on Friday.
(Reporting by Alejandro Barbajosa; Editing by Michael Urquhart)
