Oil rises on expectations for fresh US stimulus

Oil rises on expectations for fresh US stimulus

LONDON - World oil prices rose Tuesday on expectations of fresh stimulus measures from the Federal Reserve to perk up the struggling US economy, and on the eve of a key OPEC output decision, analysts said.

Brent North Sea crude for January added 70 cents to US$108.07 per barrel in early afternoon deals in London.

New York's main contract, light sweet crude for delivery in January, or West Texas Intermediate (WTI), won 41 cents to US$85.97 a barrel.

The US central bank's policy-setting Federal Open Market Committee (FOMC) is expected to announce new measures to stimulate the economy at the end of a two-day meeting that starts late Tuesday.

"Tonight the Fed begins a two-day love-in, which could see the announcement of more bond-buying ... which could give markets another leg up this month," said a report from trading firm IG Markets.

Stubborn high unemployment in the world's largest economy and oil consumer as well as the looming fiscal cliff, give the FOMC every reason to expand its stimulus efforts, analysts said.

Traders are keeping an eye on what the Fed will do as the end approaches of its "Operation Twist" programme, under which it has sold short-term debt to buy longer-term debt.

There are signs that bank policymakers will replace it with more outright bond purchases, or "quantitative easing", aimed at lowering interest rates to encourage businesses to invest and hire.

Meanwhile, traders digested the latest demand forecasts from OPEC on the eve of the cartel's latest production meeting.

OPEC kept its forecast for growth in world oil demand unchanged for 2012 and 2013 as ministers gathered in Vienna.

World oil demand this year was expected to reach 88.80 million barrels per day (mbpd), up from 88.04 mbpd in 2011, the Organisation of Petroleum Exporting Countries said in its monthly report, repeating the same figures given in November.

Next year, global demand is set to grow to 89.57 mbpd, OPEC forecast.

The report comes a day before ministers of the 12-nation cartel meet in Vienna to decide on its oil production ceiling.

OPEC, which pumps 35 per cent of the world's oil, said much of its demand growth this year came from Japan, which has turned to oil after shutting down nuclear power plants in the wake of the Fukushima disaster in 2011.

For 2013, OPEC was more optimistic, citing an improving economy in the United States and a potential return to growth in the eurozone, though it cautioned that "this might prove challenging."

At its last meeting in June, OPEC opted to keep its oil output ceiling at 30 million barrels per day - after first agreeing on the level a year ago - and vowed to eliminate over-production.

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