LONDON (Reuters) - Oil was above $65 a barrel on Wednesday, boosted by a surge in global stock markets on expectations the Federal Reserve and other central banks are poised to cut interest rates to revive global growth.
China cut interest rates for the third time in six weeks, prompting speculation of coordinated action on rates by central banks. [nBJC000218]
U.S. light crude for December delivery was up $2.98 at $65.71 a barrel by 1137 GMT (7:37 a.m.EDT). It touched a session high of $66.71. On Monday, it fell to a 17-month low of $61.30.
London Brent crude was up $2.90 a barrel to $63.19.
China's rate cut provided evidence that the economic slowdown is starting to affect emerging markets.
"There's building evidence in China that the slowdown we're seeing everywhere else is taking place there as well," said Derek Halpenny, European head of FX research at BTM-UFJ.
Oil has fallen more than 50 percent from a record peak of $147.27 in July, as the credit crisis has spilled over into the real economy and dampened demand for oil in industrial countries.
Merrill Lynch has cut its U.S. crude oil price forecast for the fourth quarter of 2008 to $78 a barrel from $107 a barrel.
"Demand for physical commodities is tanking in many parts of the world, with U.S. oil consumption contracting at the sharpest rate since 1980," the bank said.
"More importantly we are starting to see signs of oil demand slowing in emerging markets."
DEMAND IN DECLINE
Oil continued to fall last week, despite a cut in production by the Organization of the Petroleum Exporting Countries, agreed at an emergency meeting to try to defend prices.
The market is focused on falls in demand across the world, particularly in top consumer the United States, where gasoline demand fell by 6.4 percent last week versus year-ago levels, data from MasterCard Advisors released on Tuesday showed.
U.S. government data, due at 1435 GMT, is expected to show a rise of 1.3 million barrels in crude stocks last week, a Reuters poll showed.
Distillate stocks are seen up 900,000 barrels while analysts forecast a rise of 1.2 million barrels in gasoline stocks.
Oil and other commodities have been tracking stock markets closely, using them as a gauge of investor sentiment on the global economy and demand for raw materials.
European and Asian stock markets were up strongly on Wednesday on hopes the Bank of Japan and other central banks would follow the U.S. Fed and cut rates. .EU
Wall Street had its second-best day ever on Tuesday, as rate cut hopes boosted major U.S. share indexes by more than 10 percent. .N
"Energy is still very much in the orbit of the U.S. equity market and has yet to decouple from it," said Edward Meir, analyst at broker MF Global.
"If equities continue to gain ground, we would not be surprised to see crude push higher in what could be an eventual test of the $70 level," he said.
(Additional reporting by Maryelle Demongeot in Singapore; editing by Anthony Barker)
