By Christopher Johnson
LONDON (Reuters) - U.S. oil futures jumped 11 percent on Friday ahead of the expected approval of the economic stimulus package by the U.S. Congress.
The U.S. Congress on Friday was expected to pass a $787 billion economic stimulus package aimed at unleashing large spending and also some tax cuts to help pull the economy out of a 14-month recession.
The United States is the world's biggest oil consumer and the economic slowdown that started in the U.S. housing market more than a year ago has undermined energy demand, sending shock waves through the oil market.
U.S. crude rose $3.80 to $37.78 a barrel by 1:20 p.m. EST. London Brent crude for April traded down 40 cents to $45.63 a barrel.
"It looks like a bounce on stimulus hopes, but only concentrated on the two front months," said Tom Bentz, analyst at BNP Paribas Commodity Futures.
The Brent March contract expired on Thursday at $44.65, extending its premium to U.S. crude to more than $10, mainly due to a glut at the main U.S. storage hub in Oklahoma.
Oil prices have fallen more than 70 percent from their peak at almost $150 a barrel last year as the economic downturn has spread to all regions of the world.
OIL DEMAND CONTRACTING
The Organization of the Petroleum Exporting Countries said on Friday world oil demand would contract more sharply than expected this year due to the economic crisis.
Making a possible case for further supply cuts, OPEC said in its monthly report that global demand would fall by 580,000 barrels per day (bpd) in 2009 to average 85.13 million bpd. Its previous forecast was for demand to contract by 180,000 bpd.
OPEC, which pumps more than a third of the world's oil, has agreed at meetings since September to cut its oil output by 4.2 million bpd, equal to 5 percent of daily world demand, to combat the slump in prices and demand.
The report said OPEC still had more to do in delivering existing output promises, suggesting OPEC met 65 percent of its pledge to lower output, according to a Reuters calculation based on the OPEC data.
Oil's losses on Thursday were exacerbated by news that the number of people staying on unemployment benefits in the United States rose by 11,000 to a record of 4.810 million in the last week of January.
In the short term, analysts believe the market's direction would be influenced by movements in stock markets.
(Additional reporting by David Sheppard in London and Fayen Wong in Perth; Editing by Christian Wiessner)
