Oil held above $91 a barrel on Tuesday, as a fragile US economy is likely to herald a fresh cut in interest rates, while forecasts for a draw in US distillate stocks and Opec to maintain output levels supported the market.
US crude ticked up 5 cents to $91.04 a barrel by 0126 GMT, following a modest gain of 28 cents a day ago in tandem with the gains in US stocks.
"The big question is has the US market bottomed out, and whether the physical stimulus is enough," said Tony Nunan of Mitsubishi Corp in Tokyo.
Investors braced for the Fed to make another cut at this week's meeting, pressuring down the dollar against most major currencies. The Fed last Tuesday cut the Fed funds rate by 75 basis points to 3.5 per cent.
Renewed hopes for a cut resulted from a US government data that showed domestic sales of new single-family homes fell a record 26 per cent last year.
The report offered little hope for a turnaround anytime soon, as a record one-month drop in the median home price for December failed to stoke demand and the number of months needed to clear the inventory of unsold homes rose.
Worries that a US recession could hit oil-demand growth have helped deflate crude from record peaks over $100 in early January. Oil fell sharply early last week but rebounded on Thursday as US legislators and the White House hammered out a $150 billion stimulus plan.
The focus has turned to US President George W. Bush's Monday State of the Union message for recession-fighting initiatives.
US regulator data on Friday showed NYMEX crude oil speculators slashed their bets on rising prices in the week to January 22 to their lowest since mid-December.
Expectations for Opec to maintain output levels when it meets on Friday in Vienna despite consumer nation calls for more oil to bring down prices, also supported prices.
Nigeria's oil minister on Monday said prices were not being influenced by supply and demand, echoing recent comments from other Opec ministers but adding he was concerned about the effect of high prices on demand.
A Reuters poll of analysts ahead of weekly US government inventory data forecast crude stocks to rise by 2.1 million barrels and a 2-million-barrel build in gasoline stockpiles but distillate stocks are expected to fall by 1.9 million barrels. (Reuters)
Oil at over $91 on hopes for Fed cut, lower stocks