NEW YORK (Reuters) - Oil jumped 5 percent on Monday on expectations OPEC will cut output this week to prop up prices hard hit by slumping demand and the mounting financial crisis.
OPEC ministers were expected to cut output at an emergency meeting set for Friday. The debate on how much oil they should take off global markets could be intense as they balance their price needs against risks to a fragile world economy.
U.S. crude rose $3.62 at $75.47 a barrel by 1:43 p.m. EDT, while London Brent crude traded up $3.42 to $73.02 a barrel.
"(Crude rose) after comments by several OPEC members over the weekend made it apparent that a production cut of at least 1 million (bpd) is the likely result of the extraordinary meeting," Addison Armstrong, analyst at Tradition Energy, wrote in a research note.
OPEC President Chekib Khelil and officials from Iran and Qatar have called on the group to reduce output after prices dropped from a record over $147 a barrel in July on slowing demand in developed economies like the United States.
Khelil on Monday said non-OPEC oil producers like Russia, Norway and Mexico also should cut production to help stabilize sagging prices. He said that if oil prices fell below $70 a barrel, many oil projects internationally "will be delayed or die."
The International Energy Agency, which advises industrialized countries, said an OPEC output cut could hinder a global economic rebound.
"The IEA is concerned (an OPEC cut) might have a negative impact on the global economic recovery," said Nobuo Tanaka, the IEA executive director.
The growing financial crisis, as well as high fuel costs earlier this year, had weighed on oil consumption.
Economic growth in No. 2 oil consumer China, a key driver in crude's six-year rally, slowed to 9.0 percent in the third quarter due to the global credit crisis and a weak property sector, leaving the economy on course for its first year of single-digit expansion since 2002.
"We expect energy and industrial metals prices will be the major casualties in this environment," Deutsche Bank said in a research note.
"We expect the oil price to fall to $50 a barrel by the end of next year," it said. "History would suggest that OPEC will struggle to defend oil prices in an environment where world GDP growth falls below 2 percent, as occurred in 1998 and 2001."
U.S. Federal Reserve Chairman Ben Bernanke told Congress another wave of government spending may be needed as the economy limps through what could be an extended period of subpar growth.
Interbank lending emerged from deep freeze and Fed chairman Ben Bernanke gave his blessing to a second U.S. government stimulus package on Monday, providing hope the world's financial crisis may be easing.
The three-month Libor rate fell more than one-third of a percentage point, its biggest one-day drop in nine months in one sign that banks may have the confidence to lend to each other again.
U.S. stocks gained further on the prospect of another government boost to taxpayers similar to one this summer when the Treasury sent out $100 billion of checks to jump-start the economy. European stocks, meanwhile, fared well as banks there prepared to make use of state rescue packages.
(Reporting by Matthew Robinson, Gene Ramos, and Robert Gibbons in New York; Jane Merriman in London; Fayen Wong in Perth; Editing by David Gregorio)
