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Tue 9 Dec 2008 09:02 AM

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Oil price rises on OPEC output cut expectations

UPDATE 2: Price still below $44 as market waits on OPEC meeting, US energy report.

Oil crept towards $44 on Tuesday, modestly supported by gains on other financial markets and mounting expectation OPEC would announce further output cuts at its meeting next week.

US crude was up 14 cents at $43.85 a barrel at 5.09pm UAE time. On Monday, prices had gained $2.90 as they recovered from last week's 25 percent drop, which marked the biggest weekly fall in 18 years.

London Brent crude eased by 18 cents to $43.24.

"Oil is on a count-down to OPEC now and everyone is expecting them to come up with something big - probably a cut of 1-1.5 million bpd," said Rob Laughlin, senior oil analyst at brokers MF Global in London.

"If OPEC doesn't make a big cut, this market is in trouble."

The Organization of the Petroleum Exporting Countries meets on Dec. 17 in Algeria and is expected to reduce overall production by a minimum of one million barrels per day (bpd).

Stock markets surged on Monday as the US government cobbled together a rescue plan for stricken automakers and US President-elect Barack Obama said he would undertake the biggest infrastructure spending since the 1950s.

The White House reviewed a Democratic plan to bail out the "Big Three" automakers with $15 billion of loans.

But fuel demand could stay weak for the foreseeable future.

Oil traders were awaiting the release later on Tuesday of the US Energy Department's Short Term Energy Outlook, which was expected to show downgrades in 2009 oil demand estimates.

In a forecast issued last month, the Energy Department said total US oil demand was projected to fall by an additional 250,000 bpd, or 1.3 percent next year, after dropping 1.1 million bpd, or 5.4 percent, in 2008.

The downward trend for oil prices remained very much intact, SG Commodities Research said in a weekly note.

"$40 a barrel could be difficult to break, but we expect WTI to go lower in the coming months. GDP, oil demand weakness and the crude overhang are much clearer than OPEC cuts so far." (Reuters)

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