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NEW YORK - Oil prices rose on Friday on short-covering before the Martin Luther King US holiday after concerns about a new US economic rescue package clipped earlier gains.
President George W. Bush has called for a package of tax cuts and other measures of around US$140 billion ($184 billion) to US$150 billion to shore up the US economy, battered by the sub-prime mortgage crisis and subsequent credit crunch.
US stocks fell after details of the stimulus package were released, and oil eased off an earlier rally that had sent prices over US$91 a barrel in the morning.
US crude settled up 44c to US$90.57 a barrel. London Brent crude rose 48c to US$89.23 a barrel.
"The good news is that the Government is taking action that may result in a firmer economic performance six months from now," said Tim Evans at Citigroup futures research. "The bad news is that this rush to action confirms how fragile the economy currently is."
US economic problems, including high energy costs, have prompted analysts to cut forecasts for oil demand growth and helped cut crude prices by 10 per cent from the record US$100.09 hit on January 3.
Amid bleak reports on retail sales and other data suggesting a possible recession, Bush and the Democratic-led Congress are negotiating to see if they can reach common ground on a plan to shore up growth.
Under consideration in the talks are ideas like tax rebates, incentives for businesses and extensions of unemployment insurance.
Bush this week also called on the Organisation of Petroleum Exporting Countries to raise production to help lower oil prices, but officials from the cartel have reacted coolly to hiking output when it meets next month to decide on production policy.
Chakib Khelil, current Opec president, said there was no reason to raise output if oil inventories recovered in the second quarter, when global consumption normally slows as winter ends in the Northern Hemisphere.
US Federal Reserve Chairman Ben Bernanke said last week more interest rate cuts may be necessary to counter the worsening economic outlook, but he added that the Fed had not forecast a recession.
- REUTERS
