Oil prices bounced back to near $87 a barrel Tuesday, supported by rising European stock markets and investors' hopes that a U.S. central bank meeting this week will come up with measures to boost economic growth. By early afternoon in Europe, benchmark oil for October delivery was up $1.12 at $86.82 in electronic trading on the New York Mercantile Exchange. Crude dropped $2.26 to settle at $85.70 on Monday. In London, Brent crude for November delivery was up $1.82 at $110.96 on the ICE Futures exchange. Investors will be closely watching the U.S. Federal Reserve's two-day meeting starting later today. Some investors expect the Fed to announce stimulus measures to help spur economic growth. Crude has traded between $80 and $90 for more than a month as traders wait for evidence Europe can solve its debt problems and whether the U.S. will slip into recession. Italy's credit rating was downgraded one notch by Standard & Poor's Ratings Services on Monday because of weak economic growth and high government debt levels. S&P has a negative outlook on Italy's ratings, citing political and policy differences that will likely limit the country's ability to respond effectively to its debt crisis. "The continued uncertainty on financial markets and the high oil price level of well over $100 a barrel (for Brent) should have a negative impact on the real economy and oil demand," said analysts at Commerzbank in Frankfurt. "Further downward revisions of demand forecasts by leading agencies are therefore not unlikely in the coming months." Analysts are concerned Europe's debt woes will worsen a slowdown in global economic growth. National Australia Bank this week cut its 2011 global growth forecast to 3.8 percent from 4.0 percent. "Given this slower growth, and its subsequent impact on demand, there is good reason to be bearish on oil prices through the remainder of 2011," NAB said in a report. European stock markets and the euro were all stronger on Tuesday, recovering quickly from S&P's downgrade of Italy. Investors in commodities tend to see rising stock indexes as a reflection of economic strength and bullish for crude, while a weaker dollar supports oil prices by making crude cheaper for investors holding other currencies. The euro rose to $1.3693 from $1.3671, while London's FTSE 100 stock index was up 1.4 percent and the DAX in Berlin gained 2.3 percent. Investors will also be monitoring fresh information on U.S. stockpiles of crude and refined products. Data for the week ending Sept. 16 is expected to show a draw of 1 million barrels in crude oil stocks and a build of 800,000 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 Tuesday, while the report from the Energy Department's Energy Information Administration — the market benchmark — will be out on Wednesday. In other Nymex trading for November contracts, heating oil rose 3.26 cents to $2.9773 per gallon and gasoline futures gained 2.86 cents to $2.7251 per gallon. Natural gas for October delivery added 2.7 cents to $3.856 per 1,000 cubic feet. ___ Alex Kennedy in Singapore contributed to this report.
