NEW YORK (MarketWatch) -- Crude-oil futures posted early gains Tuesday, boosted by expectations that the OPEC cartel will agree on a big production cut tomorrow.
Crude for January delivery added 45 cents, or 1%, to $44.96 a barrel in electronic trading on Globex. The contract had surged to an intraday high of $45.69 a barrel.
"Crude futures were a touch higher this morning after poor economic data from Europe were countered by hopes OPEC will deliver its largest ever supply cut this week," said Nimit Khamar, an analyst at Sucden Financial, in a note.
The Organization of Petroleum Exporting Countries, which controls about 40% of the world's oil production, is widely expected to agree on a cut in member nations' quotas at its meeting Wednesday in Oran, Algeria. In October, the cartel announced a production cut of 1.5 million barrels a day, but it left output levels unchanged at its November meeting.
OPEC should cut output by about 2 million barrels a day, because anything less than that may not be enough to stop oil prices from falling further, Khamar said.
Russia, which isn't an OPEC member, will attend the cartel's meeting as an observer and is expected to announce proposals for a cut in Russian output. Russia ranks as the world's No. 2 producer after Saudi Arabia.
Crude futures put in a very volatile session on Monday, when the benchmark contract fell $1.77, or 3.8%, to close at $44.51 a barrel on the New York Mercantile Exchange. It had surged 8.1% to $50.05 a barrel earlier in the session, topping the $50 mark for the first time since Dec. 1.
Energy traders also awaited a decision by the Federal Reserve on interest rates later Tuesday.
Most Wall Street firms expect the U.S. central bank to slash its benchmark rate in half, to 0.5% from 1%, although many economists see scope for a prospective reduction all the way to 0.25%.
A public statement from the Federal Open Market Committee, culminating a two-day meeting of the monetary-policy panel, is expected at 2:15 p.m. Eastern. See The Fed.
Also on Globex Tuesday, January reformulated gasoline rose 3 cents, or 3%, to $1.06 a gallon and January heating oil gained 4 cents to $1.50 a gallon, also up 3%.
Natural gas for January delivery rose 2 cents to stand at $5.66 per million British thermal units.
Economic weakness
There were more grim economic news from both sides of the Atlantic on Tuesday. Traders have been worrying that a global recession will spell weaker demand for energy.
U.S. housing starts dropped an eye-popping 18.9% to a seasonally adjusted annual rate of 625,000, the lowest rate since the Commerce Department began keeping records in 1959. See Economic Report.
And the euro-zone's recession likely deepened in the fourth quarter, as a closely watched gauge of activity in the manufacturing and services sectors fell to yet another record low. Read more.
In foreign exchange, meanwhile, the U.S. dollar fell against other major currencies. See Currencies.
"Despite the grim macro news, one variable that has been lifting energy of late has been the weaker dollar," said Edward Meir, an analyst at MF Global.
In theory, a weaker dollar should boost energy prices, because it gives non-U.S. consumers extra purchasing power. However, with most economies outside the U.S. also sinking into recession, foreign-based demand probably won't be sustainable, Meir said in a research brief.
"Instead, poor macro readings should override the weaker dollar and reverse any currency-induced rallies," he wrote.
"It seems, therefore, that at least in the very short term, oil bulls have to throw their lot in with OPEC and hope that the cartel comes through, not only with a substantial cut, but with a Russian agreement to pare production as well," Meir added.
