(Updates prices, paragraphs 3-4, U.S. market, para 11)
By Randy Fabi
LONDON, Jan 22 (Reuters) - Oil cut some of its losses to
trade around $89 a barrel on Tuesday after the U.S. Federal
Reserve took emergency action to help prevent the world's
biggest fuel consumer from tipping into recession.
The U.S. Federal Reserve on Tuesday slashed the benchmark
federal funds target rate by 75 basis points to 3.5 percent in a
surprise decision.
U.S. crude <CLc1> was trading at $89.12 by 1527 GMT, down
$1.45 from Friday's settlement. There was no settlement on
Monday as floor-trading was closed for a U.S. public holiday.
London Brent crude <LCOc1> fell a cent to $87.50 a barrel.
"I would expect oil prices to begin to solidify a little bit
just simply from the factor that the rate cuts will weaken the
dollar," said Simon Wardell of Global Insight.
"I'm not sure that this is going to be enough to revive
people's hopes for the economy over the next few months. You
might not see too much of an effect."
A sharp sell-off earlier had knocked U.S. crude down to
$86.11 a barrel -- its weakest since Dec. 6 -- as speculative
funds began to sell positions in oil markets and other
commodities as part of a portfolio readjustment.
"There's a lot of fear out there. That could make some
market participants go into cash until the situation becomes
clearer," said Mike Wittner of Societe Generale.
The sell-off has taken oil prices below a range of roughly
$90-$100 a barrel sustained since late October.
European markets recovered slightly on Tuesday after stock
markets around the world on Monday suffered their deepest losses
since Sept. 11 2001.
U.S. markets, which were closed on Monday, were still
sliding. []
SPECULATORS SELL?
Goldman Sachs said if all speculative length were liquidated
on the oil markets, prices could drop to the low $80s, but
fundamentals of supply and demand would probably prevent funds
from selling out completely.
"Fundamentals continue to show little sign of weakness and
suggest that the recent sell-off is overdone," Goldman Sachs
wrote in a note.
Inventory data in top consumer the United States last week
showed the first increase in oil stocks for nine weeks, but
Goldman Sachs said stores of refined products in industrialised
countries were still relatively low.
Concerns about political instability in oil-producing
countries like Nigeria were also expected to provide support for
oil prices.
Oil has fallen around 11 percent from its record high of
$100.09 hit on Jan. 3, relieving pressure on the Organization of
the Petroleum Exporting Countries (OPEC) to agree a production
increase when it meets on Feb. 1.
But the producer group is not expected to cut output while
the world is smarting from the impact of high oil prices and
economic uncertainty makes it extremely difficult to predict oil
demand.
"With mounting evidence of a slowdown in U.S. economic
expansion at year-end, fears of a downright recession have
multiplied," OPEC said on Tuesday in a monthly report.
(Additional reporting by Luke Pachymuthu in Singapore, Barbara
Lewis and Peg Mackey in London)
