Oil rose yesterday, supported by expectations that OPEC may cut output this week to boost prices that have fallen more than 50 percent in just three months from a record high above $147 a barrel. Gains in European and U.S. stock markets on signs of the credit crunch might be easing also helped underpin oil.

U.S. crude for November delivery was up $2.07 at $73.92 a barrel by 1420 GMT. The contract settled $2 higher on Friday at $71.85. London Brent crude rose $1.88 to $71.48 a barrel. «In our view, OPEC could well announce a 1 million barrel per day output reduction,» Merrill Lynch said in a research note. ?Under a catastrophic demand scenario, we believe OPEC could be forced to withdraw up to 2.4 million bpd from the market in the next 12 months.?

Several OPEC members have already called for an output cut, including Iran, Qatar and also Chekib Khelil, president of the Organization of the Petroleum Exporting Countries. But others are concerned a big reduction could send the wrong signal to financial markets, still trying to find stability after the shocks of the credit crisis. ?If there is a need to cut 500,000 barrels per day or 1 million barrels per day of the organization?s production or not...the decision should be presented in a way that gives confidence to the market and the world and does not give a negative impact,? al-Hayat, a Saudi-owned Arab language newspaper said, quoting an OPEC source.

The International Energy Agency, which advises industrialised 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.

Analysts believe a global economic slowdown could lessen the impact of any OPEC cuts to defend prices. ?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. 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.? Oil, which hit a record high of over $147 a barrel in mid-July, touched a 16-month low of $68.57 last week, pressured by falls in demand in top energy consumer the United States and other industrialised countries.

<B>Jane MERRIMAN</B>