Oil rises above $64 as stock markets rally

LONDON (Reuters) - Oil rose to nearly $65 a barrel on Tuesday, tracking a recovery in European and Asian stock markets as dealers returned to buy beaten-down shares.

The market also drew support from evidence OPEC would act upon last week's decision to cut output as the United Arab Emirates state oil company reduced volumes to term customers.

OPEC ministers said they were ready to take further action.

U.S. light crude for December delivery rose $1.43 to $64.65 by 12:36 p.m..

London Brent crude gained $1.06 to $62.47. "I think oil is up in line with stock markets and the possibility of deeper OPEC production cuts, whether this will have an impact will depend on who is cutting and by how much," said Christopher Bellew of Bache Commodities.

European equities rose on Tuesday, helped by a late surge in Asia and a jump in shares of heavyweight oil group BP after its third-quarter earnings beat forecasts.

The credit crisis, which began with failing U.S. mortgages, has widened into a worldwide rout as investors have dumped stocks and commodities, shunned higher-risk emerging markets and sought out the safest government bonds and currencies.

Global economic turmoil has already had a major impact on fuel consumption and some analysts have predicted $50 a barrel -- widely seen as the cash cost of production for many newer oil projects -- is possible in the short term.

U.S. crude has already dropped by nearly 60 percent from a record above $147 a barrel in July to a low of $61.30 on Monday, its weakest for 17 months.

OPEC's announcement last week it would cut output by 1.5 million barrels per day initially did little to stem oil's fall as the market was sceptical the group would really reduce supplies.

On Tuesday the United Arab Emirates Abu Dhabi National Oil Co (ADNOC) notified its customers it was cutting contracted volumes for some crude by 5 percent, in line with last week's OPEC deal.

For some of its oil, the cut was 15 percent for December supplies.

The group's secretary general said that if prices continued to fall, OPEC could decide to hold another meeting before its next scheduled talks in December.

For the next indication of the balance of supply and demand, traders were looking ahead to U.S. fuel stocks data to be released on Wednesday.

Crude inventories were expected to have risen for the fifth week in a row last week following higher imports, a preliminary Reuters poll of eight industry analysts showed.