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Tue 7 Oct 2008 12:39 AM

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Oil price rebounds after hitting 8-month low

UPDATE 1: Price back above $88 a barrel as it recoups some of losses caused by global fears.

Oil rebounded above $88 a barrel on Tuesday, recouping some of the $6 losses that sent it to an eight-month low the previous day when investors bet the global economy would slip into recession and demand for fuels would sink.

Governments around the world scrambled for new measures to contain the fast-spreading credit crisis amid a cross-asset sell-off in stocks, bonds and commodity markets.

US light crude for November delivery was 75 cents higher at $88.56 a barrel at 0111 GMT, the first rise in five trading days.

That came after it fell as low as $87.56 a barrel on Monday, the first time below $90 since early February.

London Brent crude rose 46 cents to $84.14 a barrel.

"It's a dead-cat bounce on thin volumes as traders digest yesterday's rout," said Jonathan Kornafel, director Asia of Hudson Capital Energy.

A crisis that began with the overheated US property market and the $11 trillion US mortgage market was still rocking confidence worldwide, with Sweden, Austria and Denmark following Germany's lead by offering blanket deposit guarantees to depositors.

Iceland meanwhile gave regulators sweeping powers to oversee a faltering banking system as its currency fell 30 percent.

In the United States, more steps to shore up banks and ease pressure on the credit markets could be coming, following the $700 billion bailout bill last week.

The U.S. dollar's rise to a fresh 13-month peak against the euro on Monday also pressured commodities, including oil.

Oil prices have tumbled from a peak above $147 a barrel in July as high fuel prices and the fallout from the financial crisis slow oil demand in top consumer the United States and other industrialised countries.

Oil demand in China, which helped fuel a 6-year rally in commodities, will be key. Analysts are watching for signs the crisis is hitting consumption there.

China will skip gasoline imports in October for a second successive month due to heavy domestic stockpiles and a dip in demand, traders said.

And members of producer group OPEC worried about the drop in the price of oil to around $90 a barrel, Iraq's oil minister told Reuters in an interview.

UBS cut its forecast for 2009 US oil prices by $15 to $105 a barrel due to weaker fundamentals and financial outflows, making it the latest in a slew of banks to have trimmed its expectations.

"We still expect prices to rise this winter, but from a lower level to a lower high. What's more, macro risks are growing, seemingly by the day," UBS economist Jan Stuart said in a note.

News that Mexico's state-owned oil company Pemex was evacuating four offshore oil platforms due to tropical storm Marco could become supportive for prices.

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