Oil was above $66 a barrel yesterday, boosted by a surge in global stock markets on expectations the US Federal Reserve and other central banks are poised to cut interest rates to revive global growth. China cut interest rates for the third time in six weeks, prompting heightened speculation of coordinated bank action on rates. US light crude for December delivery was up $3.44 at $66.17 a barrel. It touched a session high of $66.97. On Monday, it fell to a 17-month low of $61.30. London Brent crude was up $3.72 a barrel to $64.01.

China?s rate cut provided evidence that the economic slowdown is starting to affect emerging markets. Oil has fallen more than 50% from a record peak of $147.27 in July, as the credit crisis has spilled over into the real economy and dampened demand for oil in industrial countries. Merrill Lynch has cut its US crude oil price forecast for the fourth quarter of 2008 to $78 a barrel from $107 a barrel. ?Demand for physical commodities is tanking in many parts of the world, with U.S. oil consumption contracting at the sharpest rate since 1980,? the bank said. ?More importantly we are starting to see signs of oil demand slowing in emerging markets.?

Oil continued to fall last week, despite a cut in production by the Organization of the Petroleum Exporting Countries, agreed at an emergency meeting to try to defend prices. The market?s focus is on falls in demand across the world, particularly in top consumer US, where gasoline demand fell by 6.4% last week versus year-ago levels. US government data is expected to show a rise of 1.4 million barrels in crude stocks last week, a Reuters poll showed. Distillate stocks are seen up 800,000 barrels while analysts forecast a rise of 1.2 million barrels in gasoline stocks.

Oil and other commodities have been tracking stock markets closely, using them as a gauge of investor sentiment on the global economy and demand for raw materials. European and Asian stock markets were up strongly yesterday on hopes the Bank of Japan and other central banks would join with the US Fed and cut rates.

Wall Street had its second-best day ever on Tuesday, as rate cut hopes boosted major US share indexes by more than 10 percent. ?Energy is still very much in the orbit of the US equity market and has yet to decouple from it,? said Edward Meir, analyst at broker MF Global. «If equities continue to gain ground, we would not be surprised to see crude push higher in what could be an eventual test of the $70 level,» he said.

Jane MERRIMAN </B>