Interest rate cuts prop up crude oil prices

London/Lagos: Oil prices on Wednesday fell nearly $2 (Dh7.35), unable to sustain a brief bounce that followed a global round of emergency interest rate cuts to try to shore up the world economy.

US light crude for November delivery was down $1.86 at $88.20 a barrel by 1305 GMT on Wednesday (5.05pm UAE time).

London Brent crude fell by $1.02 to $83.64.

"Looks like the rate cuts caused the bounce after important support at $86 held," said Tom Bentz, analyst at BNP Paribas Commodity Futures Inc.

"But oil markets are backing off highs as energy demand concerns remain."

Early in the session, US crude had fallen by more than $4 to $86.05, its lowest since December 6, 2007, after British government action to prop up its banks failed to reassure financial markets and oil traders predicted oil demand would fall.

Financial markets rallied collectively after the US-led rates cuts.

The US Federal Reserve said it was cutting its key rate by 50 basis points to 1.5 per cent.

Other banks cutting interest rates also included China, which reduced its key rate by 27 basis points.

Surging demand

Surging oil demand in China and elsewhere in Asia played a large part in oil's sustained rally that culminated in a record of $147.27 in July this year.

Many analysts had predicted fuel demand in China would remain strong even if it plummeted in the United States, the world's biggest energy consumer, but concern has mounted that the Chinese economy will not escape global economic turmoil.

Meanwhile, Opec may need to intervene to balance the oil market if prices fall further, Nigeria said on Wednesday, making it the latest country in the exporters' group to float the prospect of supply curbs.

Nigeria joins Libya, Iran and Iraq, fellow members of the Organisation of Petro-leum Exporting Countries (Opec), in expressing concern this week about the impact of the financial crisis on the oil market.

"There may be a need to intervene to balance the market, if the price slide seemingly predicted on demand and over-supply continues," Nigerian Oil Minister Odein Ajumogobia said.

Credit crisis

Expectations mounted that the credit crisis would slow global demand for oil, the main source of income for Opec members.

The group's 13 members pump about two in every five barrels of oil. On a visit to Turkey, Iraq's Oil Minister, Hussain Al Shahristani, said Opec may need to consider cutting output if the price of crude remains below $90.

Saudi Arabia, Opec's largest producer and most influential member, has yet to comment publicly on oil's latest decline.