(Updates prices in paras 3-4)
By Luke Pachymuthu
SINGAPORE, Jan 23 (Reuters) - Oil retreated below $89 on
Wednesday after making a nervous recovery as an emergency U.S.
interest rate cut halted a global financial market sell-off but
failed to halt recession fears in the world's top oil consumer.
In a rare policy move outside of its ordinary meetings, the
Federal Reserve slashed interest rates by 75 basis points to
3.5 percent on Tuesday, its biggest cut in more than 23 years
and a move that some traders said smelled of panic.
[]
U.S. crude <CLc1> fell 55 cents to $88.66 a barrel by 0748
GMT after falling as low as $86.11 a day ago amid a global
stock market rout.
London Brent crude <LCOc1> shed 45 cents to $88.00 a
barrel, about $1 below its close on Friday before the worst of
the turmoil hit global markets.
Some analysts said traders had been selling oil and other
commodities to cover margin calls in other markets.
"I think a lot of people realise the underlying weakness of
the economy is still unfolding... traders feel that there are
lots more losses still waiting to be revealed," said Robert
Nunan, manager at Mitsubishi Corp's risk management unit.
Oil prices plunged on Monday and Tuesday, as world stock
markets momentarily posted their steepest losses since Sept.
11, 2001 amid widespread concerns that the impact from the U.S.
credit and housing crisis could trigger a recession, curbing
the steady rise in oil demand that has fuelled prices for five
years.
Major Asian share markets that had been battered a day ago
roared back early on Wednesday, before giving up much of their
gains, with Hong Kong up 5.3 percent and Australia up over 4
percent, while the euro's further gains to the dollar lent
support to the energy complex.
OIL STILL STRONG
While down almost 12 percent from their all-time peak above
$100 a barrel hit Jan. 3, oil prices are still up more than 60
percent from a year ago, supported by tight inventory levels,
OPEC output restraints and strong demand from investors seeking
higher returns and a possible hedge against inflation.
Goldman Sachs said that while oil prices could slide into
the low $80s if speculators liquidated their long positions,
strong fundamentals would probably prevent funds from selling
out completely.
U.S. crude oil stocks, which rose for the first time in
nine weeks last week after hitting their lowest since 2004, are
expected to have risen by another 2.1 million barrels last
week, a preliminary Reuters poll found. []
The government inventory data, due out a day later than
usual on Thursday due to Monday's U.S. holiday, are also likely
to show a 1.4 million-barrel rise in gasoline stocks as
refiners begin to build up supplies ahead of summer, the poll
showed.
Oil's recent slide has relieved pressure on the
Organization of the Petroleum Exporting Countries (OPEC) to
agree on a production increase when it meets on Feb. 1.
Several OPEC ministers have hinted that it will keep
production steady at the meeting. On Tuesday UAE's oil minister
Mohammed al-Hamli said the recent price drop was a "positive
thing".
(Editing by Ramthan Hussain)
