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Oil prices mixed in Asian trade after surprise

Tuesday, January 22, 2008

SINGAPORE (Thomson Financial) - Oil prices were mixed in Asian trade Wednesday after the US Federal Reserve cut key interest rates in a surprise move amid deepening worries of a likely US recession.

In morning trade, New York's main contract, light sweet crude for delivery in March, was up 8 cents at 89.29 US dollars a barrel.

The February contract, which expired Tuesday, had closed 72 cents lower at 89.85 dollars in New York overnight.

Brent North Sea crude for March delivery was one cent lower at 88.44 dollars a barrel.

In an unexpected move Tuesday, the Fed cut its key interest rate by an unprecedented 75 basis points to 3.50 percent in an effort to offset a housing downturn and credit crisis that threaten US economic growth.

"The crude oil futures market moved in line with a global sell-out but the cut in interest rates would stabilize the sell-off in equities," said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore.

The Fed acted after Monday's massive plunge on stock markets around the world as US recession fears deepened.

Interest rate cuts can encourage demand for oil and other commodities in the US, which is the world's biggest economy and largest energy consumer, analysts said.

With crude oil holding steady at around 89 dollars, Shum believes that the move to cut interest rates has "stabilized the US stock market even though it closed lower on Tuesday".

Shum added that crude oil prices are expected to move upwards Wednesday.

The market is also awaiting a February 1 meeting of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna.

"The market does not expect OPEC to increase production output but there is speculation that there might be a decision to cut down supplies," Shum said.

Leading energy consultants CGES had warned Monday that global growth could be further endangered if OPEC decides to cut output next month.

Prices remain at high levels but have shed more than 10 percent in value since striking a record in New York of 100.09 dollars per barrel in early January.

Posted by Unknown at 9:22 PM  

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