Oil prices rose close to $42 a barrel, tempering an overnight tumble on expectations that positive company earnings and economic stimulus packages will dent the global slowdown and boost demand for crude.
Light, sweet crude for March delivery rose 18 cents to $41.76 a barrel by midday in Europe in electronic trading on the New York Mercantile Exchange. The contract fell $4.15 overnight to settle at $41.58 amid more evidence of decline in the U.S. housing industry, more job cuts and plunging consumer confidence.
Profits posted by U.S. Steel, American Express, chip-maker Texas Instruments Inc. and movie rental company Netflix Inc. reassured investors that while the fourth quarter was generally terrible for American companies, some are still able to make money.
"Remember, things have been so ugly for so long now that it doesn't take a lot to have a positive surprise," said Jim King, chief investment officer at National Penn Investors Trust Co. in Reading, Pa.
The House of Representatives is expected to vote Wednesday on an $825 billion stimulus bill which backers say could create up to 4 million jobs. The bill, which includes roughly $550 billion in spending and $275 billion in tax cuts, could be signed by President Barack Obama by mid-February.
Policymakers throughout Europe and Asia have scrambled to increase spending and lower interest rates as the worst recession in decades prompts job cuts and a drop in consumer demand.
"There are some expectations in the market that the various stimulus packages will likely do some good and stop a further deepening of the recession," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.
Oil has mostly traded between $40 and $45 a barrel since mid-December as the Organization of Petroleum Exporting Countries implements a 4.2 million barrels output reduction announced since September.
"The production cuts by OPEC probably have a lot to do with oil now stabilizing in this range," Shum said.
Investors will be watching for signs of further slowing U.S. demand in the weekly oil inventories report to be released Wednesday by the U.S. Energy Department's Energy Information Administration.
The report is expected to show that oil stocks rose 3.4 million barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
Crude inventories have grown 14 million barrels in the last three weeks, evidence hundreds of thousands of job losses during recent months have begun to impact consumer spending.
"There will be ongoing downward pressure on oil prices with all the bad economic news that keeps coming out," Shum said. "The announcements of job cuts around the world this week have been staggering."
Vienna's JBC Energy also warned of "feeble sentiment" on the market, noting massive U.S. layoffs, plunging consumer confidence and housing prices that have plummeted more than 18 percent over a year.
The Platts survey also projects that gasoline inventories rose 1.8 million barrels and distillates fell 1.8 million barrels last week.
In other Nymex trading, gasoline futures and heating oil rose 1 cent to $1.12 and $1.39 a gallon. Likewise natural gas for February delivery increased by 1 cent to $4.51 per 1,000 cubic feet.
In London, the March Brent contract climbed 65 cents to $44.38 on the ICE Futures exchange.
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Associated Press writer Alex Kennedy in Singapore contributed to this report
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