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oil jumps 9 percent on stock market gains

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    By Chris Baldwin

    NEW YORK (Reuters) - Oil trimmed early gains of nearly 9 percent on Wednesday as an expected cut in U.S. interest rates sent U.S. stock markets lower and the dollar was on pace for its biggest one-day decline in 13 years.

    The U.S. Federal Reserve cut a key interest rate by a hefty half-percent to prevent a widening credit crisis, taking its target for overnight bank lending to 1 percent, the lowest since 2004.

    Stocks gyrated in highly volatile trade following the rate cut while the dollar pared losses against the euro but was down sharply against a basket of currencies.

    U.S. crude rose $5.07 to $67.80 a barrel by 2:53 p.m. EDT, after hitting a session high of $68.91.

    London Brent crude surged $5.36 a barrel to $65.65.

    "This latest Fed rate cut hopefully could serve to revive the economy and for the long-term improve demand for crude oil and petroleum products," said Andy Lebow, a broker at MF Global.

    "At the moment, I don't see the Fed decision affecting session prices on crude futures. NYMEX crude is holding on to large gains made earlier. It doesn't look like there is any impulse buying or selling at the moment," he said.

    The global financial crisis has hit oil demand and sent crude prices tumbling from record highs over $147 a barrel struck in July.

    Earlier this year, investors poured cash into oil and other commodities as a hedge against inflation and the slumping greenback.

    U.S. INVENTORIES

    U.S. crude inventories last week rose 500,000 barrels, less than the 1.4-million-barrel gain expected by analysts, according to data released by the U.S. Energy Information Administration.

    Distillate stocks rose 2.3 million barrels -- above the 800,000-barrel increase forecast by analysts, while gasoline stocks fell by 1.5 million barrels compared with analysts expectations of a 1.2-million-barrel build.

    Gasoline demand continued to fall, down 3.4 percent over the past four weeks versus the year-ago period, while total product demand was down 7.8 percent for the same period.

    Some OPEC members have said the producer group could cut oil production again to help support prices, after agreeing to a 1.5-million-barrel-per-day (bpd) reduction last week.

    "If there is a surplus in the market, if nobody needs the production, then a decision might be taken," Kuwait Oil Minister Mohammad al-Olaim told reporters.

    Venezuela would back an additional OPEC production cut, possibly of 1 million barrels per day, if it were necessary to stabilize crude oil prices, President Hugo Chavez said on Tuesday.

    (Additional reporting by Jane Merriman in London and Maryelle Demongeot in Singapore; Editing by Christian Wiessner)
 
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