--Tighter North Sea supplies supporting oil prices --Nymex October crude futures contract expires Tuesday --Investors eyeing Federal Open Market Committee two-day meeting, starting Tuesday By Jenny Gross Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Crude prices rallied Tuesday buoyed by tighter North Sea oil supplies, as investors shrugged off Standard & Poor's sovereign debt rating downgrade for Italy saying it was already priced in. At 1122 GMT, the November Brent contract on London's ICE futures exchange was up $1.25, or 1.1%, at $110.39 a barrel. The October contract on the New York Mercantile Exchange was trading up 68 cents, or 0.8%, at $86.38 per barrel. The October Nymex contract is set to expire Tuesday. Crude futures started to rally on the tighter supplies after closing 2.74% lower in Monday trading, with both Brent and Nymex rising more than 1.5% in early trade. "I think we are still seeing some tension on the Brent market because of relatively tight supply, particularly with the delay of Forties cargoes which is supporting prices, and relatively strong prices in the front month," said Christophe Barret, a global oil analyst at Credit Agricole. Earlier Tuesday, a North Sea crude trader told Dow Jones Newswires that the first Forties cargo for October loading has been delayed. Forties crude is the main component of benchmark Brent, against which more than half the world's crude oil is priced. Tight crude supplies are continuing to provide strong support for Brent crude as Libyan oil exports will take a while to get back to pre-conflict levels thus only slightly easing market conditions, said Bjarne Schieldrop, a chief commodities analyst at SEB. Earlier Tuesday, Organization of Petroleum Exporting Countries Secretary General Abdalla Salem el-Badri said the producer group could look at reining in output if Libyan production returns to a "meaningful quantity before the end of the year" amid a weakening demand picture for this year and next. Given the contradictory picture for energy--tight fundamentals, which support prices as they make the market more vulnerable to supply shortages, and uncertainty over economic woes in Europe and the U.S.--crude oil prices are likely to remain volatile, analysts said. European equities were higher ahead of a discussion between the International Monetary Fund, the European Commission and the European Central Bank scheduled for Tuesday evening. Investors will be looking to a scheduled two-day Federal Open Market Committee meeting, that begins Tuesday, for hints on further monetary stimulus. Market participants will also look to weekly data from the American Petroleum Institute, due late Tuesday, for cues on U.S. crude oil inventories, though these figures may not have a huge affect on price, says Dominick Chirichella, analyst at the Energy Management Institute in New York. Data due Wednesday from the Energy Information Administration are expected to show crude stockpiles declining by 1.7 million barrels last week after falling 6.7 million a week earlier, according to a Dow Jones Newswires survey of analysts. At 1123 GMT, the ICE's gasoil contract for October delivery was up $6.25 at $937.75 per metric ton, while Nymex gasoline for October delivery was 233 points higher at $2.7198 per gallon. -By Jenny Gross, Dow Jones Newswires; 4420-7842-9239; jenny.gross@dowjones.com

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