NEW YORK (MarketWatch) -- Oil futures extended their rally Thursday on rising expectations that the Organization of Petroleum Exporting Countries will cut production at its meeting next week.
Crude oil for January delivery rose $3.07, or 7%, to $46.58 a barrel in electronic trading on Globex.
Oil prices soared more than 3% on Wednesday.
"Currently, there appears to be no sign of the deteriorating demand outlook bottoming out, so one of the main factor supporting prices at the moment is market expectations of a large OPEC cut next week," said Nimit Khamar, an analyst at Sucden Research, in a note.
"In our opinion, if OPEC fails to meet these expectations, then oil prices could test recent lows once again," Khamar said.
OPEC is widely expected to agree on a production cut at its Dec. 17 meeting. In October, the group announced a production cut of 1.5 million barrels a day, but at its November meeting it left production unchanged.
Global oil demand to rise in 2009: IEA
Global oil demand is expected to contract in 2008 for the first time since 1983, shrinking by 200,000 barrels a day, with the total this year revised down by 350,000 barrels a day to 85.8 million barrels a day, the International Energy Agency said Thursday in its monthly oil market report.
The IEA said demand in 2009 will rise again to a downward-adjusted 86.3 million barrels a day based on the International Monetary Fund's assumption that the global economy will gradually recover from the second half of next year.
In contrast to the IEA's expectations, the U.S. Energy Information Administration said Tuesday that global oil consumption is expected to decline by 50,000 barrels a day in 2008 and by 450,000 barrels a day in 2009, which would mark the first time in three decades that world consumption would decline in two consecutive years.
Energy traders also watched developments on Capitol Hill. The U.S. House of Representatives approved a $14 billion federal loan package for the struggling Big Three automakers on a 231-170 vote late Wednesday, overcoming opposition of some Republicans but sending the bill to an uncertain fate in the Senate.
Republicans in the House and the Senate said throughout the day that a bailout for the Big Three wouldn't lead them to long-term viability or competitiveness. Read more.
In the currency markets, the U.S. dollar fell sharply against its rivals Thursday, as a surge in jobless claims and other negative economic data put the greenback under heavy selling pressure.
The dollar index a measure of the greenback against a trade-weighted basket of six currencies, slipped 0.9% to 83.97 from 85.480 in North American activity late Wednesday. See Currencies.
Dollar weakness typically boosted dollar-denominated commodities such as oil and gold. Gold futures also rallied. See Metals Stocks.
Also on Globex Thursday, January reformulated gasoline rose 7 cents, or 7%, to $1.04 a gallon and January heating oil gained 7 cents, or 5.3%, to $1.48 a gallon.
January natural gas futures rose 4 cents to $5.73 per million British thermal units.
The EIA will report Thursday the latest data on natural-gas inventories. Global Insight is projecting a storage withdrawal of 112 billion cubic feet for the week ended Dec. 5.
