LONDON (AFP) — Oil prices advanced on Tuesday, in line with rebounding world equity markets, but remained some way off the record high of nearly 112 dollars that was hit the previous day.
New York's main oil contract, light sweet crude for delivery in April, rose 1.47 dollars to 107.15 dollars per barrel, after hitting a record peak of 111.80 dollars on Monday.
Brent North Sea crude for May was up 1.54 dollars to 103.29 dollars. It struck an all-time peak of 107.97 on Monday.
"Some confidence seems to have been restored with global equity markets higher," wrote analysts at energy consultancy John Hall Associates.
"The Federal Reserve is expected to announce their rate decision later today, with a 0.75-1.0 percent cut widely anticipated. This would weaken the dollar and could potentially push oil prices back up, though the US economy remains weak."
Global stock markets rallied on Tuesday before a widely-expected sharp cut in US interest rates by the Fed to help fight the global credit crisis which sank investment bank Bear Stearns, dealers said.
But there were growing fears that even a hefty rate cut of up to one percentage point might not be enough to ward off a recession in key energy consumer the United States.
After reaching historic heights on Monday, prices had dived lower, plunging by 4.53 dollars in New York, as traders worried the fallout from rising financial market turmoil and slowing growth would curb global energy demand.
"Prices suffered from extreme volatility on Monday as concerns over the stability of several financial institutions rocked general investor sentiment," said Barclays Capital analyst Kevin Norrish.
"As the US markets opened, concerns over the health of some US financial institutions combined, with the release of poor industrial production figures, triggering a sharp sell-off."
The sudden demise of Bear Stearns, one of Wall Street's biggest financial firms, has sparked worries of a spillover effect on the rest of the US economy, dealers said.
JPMorgan Chase announced late Sunday it would acquire Bear Stearns for two dollars a share, valuing the company at about 236 million dollars, just a fraction of its worth a week ago.
David Moore, a commodity strategist with the Commonwealth Bank of Australia, said that "concerns over stresses in the international financial system and the related risk of a US recession" were weighing on sentiment.
Oil prices rose to consecutive record high levels in recent weeks, driven by the US currency's persistent slump against the euro and other major units which in turn triggered a flood of funds into commodities including crude.
The weak US currency makes oil and other commodities an attractive investment option because they are priced in dollar and become more affordable for purchasers holding stronger currencies. Investors also view them as a hedge against inflation.
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