Oil Rises Above $40 On Citi Stake Report

Oil rose above $40 a barrel on Monday, recovering from earlier losses, after sentiment was lifted by a report the U.S. government was in talks on increasing its stake in Citigroup.

Further evidence the Organization of the Petroleum Exporting Countries has enforced output cuts also provided support, although persistent worries about the weakness of the global economy limited gains.

U.S. front-month crude rose 29 cents to $40.32 by 1055 GMT, off a session low of $39.53. The contract ended 15 cents lower at $40.03 on Friday.

London Brent crude gained 43 cents to $42.32.

"For the moment, the crude market seems to be holding up within the $32-$50 trading range we suspect will be with us for some time to come," MF Global said in its daily note.

"The upside remains sticky above $50 given the dreary macro situation, while the downside will be kept in check by OPEC's ongoing efforts to cut production."

European and Asian stocks rose and the dollar slipped on Monday after the Wall Street Journal reported the U.S. government could end up owning as much as 40 percent of Citigroup Inc.

A source familiar with the situation told Reuters talks were ongoing between Citi and regulators that could increase the government's stake.

The Citigroup news cheered investors who cut their safety trades, prompting gold, a safe-haven investment, to fall after topping $1,000 an ounce last week.

OPEC COMPLIANCE

Global energy consumption has shrunk as the financial crisis has thrown major economies into recession, prompting oil prices to fall by more than $100 since last July's peak of nearly $150.

OPEC has already agreed on cuts totalling 4.2 million barrels per day since last September and evidence has mounted of a high level of compliance with the lower production targets.

In February, OPEC oil supply was expected to drop sharply, declining to 27.6 million barrels per day (bpd), down 1.1 million bpd from 28.7 million bpd in January, consultant Petrologistics told Reuters.

The producer group is also very likely to decide on a new production cut at its next meeting scheduled in March, Algerian Energy and Mines Minister Chakib Khelil said at the weekend.

Oil had fallen in response to worries about a deepening economic recession after comments last week by Paul Volcker, a top adviser to President Barack Obama, that the global economy might be deteriorating even faster than during the Great Depression.

Financial markets will be keeping an eye on Federal Reserve Chairman Ben Bernanke's policy report to the U.S. Congress on Tuesday and Wednesday. He is expected to offer assurances help is on the way for the U.S. economy and may offer clues on additional steps that could halt the economy's downward spiral.