Oil price gains prior to OPEC meeting

OPEC POISED: The oil cartel is set to deliver its verdict on oil output on Wednesday. (Getty Images)

Oil gained some ground to above $44 on Wednesday as expectations OPEC will cut supplies further moved to centre-stage, stealing the limelight from concerns about an ill-performing global economy that is weighing on fuel demand.

A tumbling US dollar on the back of the US Federal Reserve's interest rate cut to a record low also helped oil.

Oil ministers from the Organization of the Petroleum Exporting Countries were near a consensus to cut output by 2 million barrels per day (bpd), the biggest reduction ever by the producer group, ahead of Wednesday's meeting in Algeria.

US light crude for January delivery, due to expire on Friday, rose 58 cents to $44.18 a barrel at 4.37am UAE time after falling to $42.56 the previous session, just off a four-year trough of $40.50 a barrel hit on Dec. 5.

London Brent crude for February delivery was untraded at the same time.

Oil prices have tumbled more than $100 from the July all-time record above $147 a barrel as financial turmoil has slowed down global economic growth and hit fuel demand.

"In the current economic outlook, a push for a higher price through a deeper-than-expected cut can easily work against the cartel's objective as it has the potential to turn sentiment on the economy even more negative," said BNP Paribas Harry Tchilinguirian.

"Establishing a price floor would be a more feasible target, implying a lower cut announcement than expected," he added.

In its monthly oil market report, OPEC said on Tuesday the first drop in world oil demand in 25 years would sharply lower the need for OPEC crude in 2009, opening the door for a substantial production cut at its meeting.

Russia, the world's largest non-OPEC producer, sent a high-level delegation to observe the meeting. Its deputy Prime Minister Igor Sechin, said Russia could cut oil exports by as much as 320,000 bpd but told Reuters that cooperation with OPEC would progress only "step by step"

Azerbaijan said it could also contribute to any OPEC decision.

OPEC has already agreed to cut output by 2 million bpd at two previous meetings, but demand has fallen faster and stocks of oil are building up. OPEC said 45 million barrels of crude oil are currently being stored at sea on oil tankers.

Crude oil stocks in top energy consumer the United States are running near the top of their five-year range and forecasters expect data to show they rose by another 300,000 barrels last week, according to a Reuters poll ahead of the US fuel inventory report due later in the session. (Reuters)

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