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Oil up to near $87 in Europe amid rising equities, weaker dollar, Obama speech expectations
Oil prices rose to near $87 a barrel Wednesday amid a strong rebound in equity markets, a weaker dollar and hopes that President Barack Obama will announce new economic support measures in a major policy speech later this week.
By early afternoon in Europe, benchmark oil for October delivery was up 72 cents to $86.74 in electronic trading on the New York Mercantile Exchange. Crude fell 43 cents to settle at $86.02 on Tuesday.
In London, Brent crude for October delivery was up 10 cents at $112.99 on the ICE Futures exchange.
Crude has traded between $80 and $90 for the last month ' down from near $115 in May ' as investors worry a sluggish U.S. economy and high unemployment rate will stymie consumer demand. Obama is scheduled Thursday to announce new government measures to create jobs and spur economic growth.
Europe's debt crisis has also weighed on oil prices and equities this week but stock markets in Asia and Europe were up significantly on Wednesday, rising at least 2 percent in several locations.
"Investors have clearly become more concerned that the global economy may be sliding back to recession," Citigroup said in a report. "We don't believe this will turn into a rerun of 2007-2008."
A weaker dollar helped boost oil prices by making crude cheaper for investors holding other currencies.
The euro was up to $1.4059 from $1.3991 late Tuesday in New York, while dollar was down to 77.17 yen from 77.67 yen.
Investors will also be monitoring fresh information on U.S. stockpiles of crude and refined products.
Data for the week ending Sept. 2 is expected to show draws of 1.7 million barrels in crude oil stocks and of 900,000 barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The American Petroleum Institute will release its report on oil stocks later Wednesday, while the report from the Energy Department's Energy Information Administration ' the market benchmark ' will be out on Thursday. Both reports come a day later than usual due to Monday's U.S. holiday.
One of the reasons the market is expecting falling inventory levels is the effect of Tropical Storm Lee, which caused shutdowns of oil rigs last week in the Gulf of Mexico.
"Some 60.5 percent of U.S. Gulf oil production remains shut as of midday on Tuesday in the aftermath of Tropical Storm Lee," said Edward Meir of MF Global in New York.
New storms during the hurricane season which usually winds down around the end of September, could help prop up prices in coming weeks.
"Commodity markets are still more susceptible to the downside for the moment given the preponderance of macro data coming in on the softer side of estimates," Meir said. "In energy's case, weather surprises could punctuate the downward move with short-lived upside spikes."
In other Nymex trading for October contracts, heating oil added 0.93 cent to $3.0195 per gallon and gasoline futures gained 0.79 cents to $2.8305 per gallon. Natural gas for October delivery slid 2 cents to $3.918 per 1,000 cubic feet.
Alex Kennedy in Singapore contributed to this report.