London: Oil firmed well above $64 a barrel on Wednesday, boosted by a 10% surge in US stock markets that reflected expectations the Federal Reserve was poised to cut interest rates to spur economic growth.
US light crude for December delivery was up $2.23 at $64.96 a barrel by 1010 GMT.
London Brent crude was up $2.30 a barrel to $62.59.
“Energy is still very much in the orbit of the US equity market and has yet to decouple from it,” said Edward Meir, analyst at broker MF Global.
“If equities continue to gain ground, we would not be surprised to see crude push higher in what could be an eventual test of the $70 level,” he said.
Oil and other commodities have tracked stock markets closely, using them as a gauge of investor sentiment on the global economy and demand for raw materials.
European and Asian stock markets rose strongly on hopes the Bank of Japan and other central banks would follow the US Fed and cut rates.
Oil has fallen more than 50% from a record peak of $147.27 in July, as the credit crisis has spilled over into the real economy dampening demand for oil in industrial countries.
Prices continued to fall last week, despite a cut in production by the Organization of the Petroleum Exporting Countries, agreed at an emergency meeting to try to defend prices.
Investor selling of commodities to move into safe-haven assets such as government bonds and cash has contributed to the price slide.
The market is focused on falls in demand across the world, particularly in top consumer the United States, where gasoline demand fell by 6.4 % last week versus year-ago levels, data from MasterCard Advisors released on Tuesday showed.
US government data due at 1435 GMT is expected to show a rise of 1.3 million barrels in crude stocks last week, a Reuters poll showed.
Distillate stocks are seen up 900,000 barrels while analysts forecast a rise of 1.2 million barrels in gasoline stocks. (Additional reporting by Maryelle Demongeot in Singapore; editing by James Jukwey)
Oil prices dipped below $63 a barrel on Tuesday as concerns about faltering demand offset Opec comments suggesting the producer group could throttle back output again to support prices.
US crude settled down 49 cents at $62.73 a barrel, before rising to $64.10 in post-settlement trade.
London Brent crude settled $1.12 lower at $60.29 a barrel.
Oil demand in the United States and other large consumer nations has dropped this year due to the slumping economy, dragging crude off record highs above $147 a barrel in July.
Gasoline demand fell by 6.4% last week versus year-ago levels, according to data from MasterCard Advisors released on Tuesday.
The losses in oil prices came despite a rally in US stocks as investors scoured the market for bargains.
Oil has tracked global stock markets at times over the past month as the financial crisis deepened.
“Seems oil is finally detaching itself from the stock market. At least for today,” said Tom Bentz, an analyst at BNP Paribas Commodity Futures Inc.
Crude prices found support early on evidence the Organization of Petroleum Exporting Countries would act on last week’s decision to cut production as the United Arab Emirates state oil company reduced volumes to term customers.
Opec ministers will take further steps to prop up the oil market, and could call another meeting before their next scheduled talks in December, officials of the producer group said on Tuesday.
The credit crisis that began with failing US mortgages has widened into a worldwide rout, with investors dumping stocks and commodities, shunning higher-risk emerging markets and seeking out the safest government bonds and currencies.