(Updates prices, adds comment, previous SINGAPORE)
LONDON, Jan 23 (Reuters) - Oil hovered near $89 a barrel on
Wednesday, attempting to consolidate a nervous recovery after
the U.S. interest rate cut.
U.S. crude <CLc1> was 11 cents down at $89.10 a barrel by
0907 GMT after plunging to a low of $86.11 in the previous
session amid a global stock market rout.
London Brent crude <LCOc1> fell 3 cents to $88.42 a barrel.
Some analysts said funds and speculators have been exiting
open positions oil and other commodities markets to cover margin
calls and finance losses in equity 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.
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.
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Oil had plunged on Monday and Tuesday, as world stock
markets 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 stock markets that had been battered a day ago
roared back early on Wednesday, before giving up much of their
gains, while European stocks also trimmed opening gains.
The dollar held broadly steady against major currencies,
stemming the previous day's selloff as the market digested the
full impact of the Fed rate cut. The dollar's weakness has been
one of the factors lending 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. []
U.S. 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".
(Additional reporting by Luke Pachymuthu, editing by William
Hardy)
