Oil rebounded from early lows to trade above $95 a barrel on Tuesday, boosted by recovering stock markets after talk of another cut in U.S. interest rates to help economies navigate the credit crisis.

The dollar fell to fresh record lows against the euro as talk of an emergency U.S. rate cut by the Federal Reserve, possibly as early as Tuesday, swirled in financial markets, boosting oil whose inverse relationship with the U.S. currency has become more pronounced in recent weeks.

U.S. light crude for January delivery stood $1.10 higher at $95.74 a barrel by 8:17 a.m. EST after rising as high as $95.89, recovering from lows of $93.99 earlier in the session. Oil is still within sight of the record $98.62 record on November 7.

London Brent crude rose $1.20 to $93.45 a barrel.

The critical question now is whether weaker global demand will cause the oil price to retreat or whether supply shortages mean that the oil price remains high despite softer demand, said Sebastian MacKay, senior economist at Scottish Widows Investment Partnership.

Market talk of the U.S. interest rate cut helped lift global stocks, with the MSCI's main world index rising 0.4 percent after losing around 1.6 percent a day earlier.

Oil prices gained on Monday despite renewed jitters over mortgage losses and the prospect of a weakening U.S. economy that fuelled sharp falls on Wall Street and in other commodity markets such as copper and gold.

Escalating worries about credit market losses coupled with a drop in oil demand in the world's top user United States, where consumption has already begun to dip, have been major bearish factors for oil.

However, many analysts say the oil market continues to find strong support from tightness in crude stocks ahead of the winter and little prospect of it easing any time soon.

The reasons we are here (at over $90) are still with us, said Harry Tchlinguirian at BNP Paribas.

An OPEC heads of state summit ended this week without an explicit commitment to boost oil supplies when ministers from the exporting group meet next month.

U.S. Energy Secretary Sam Bodman repeated his call for OPEC to boost output at its next meeting in Abu Dhabi in December, noting that crude oil stocks in OECD countries were about 100 million barrels below the five-year average.

U.S. weekly crude inventories are expected to have risen by 1.2 million barrels as refiners import more oil to meet pre-winter demand, a preliminary Reuters poll found.

The data is also expected to show a 500,000-barrel drop in distillate inventories and an 800,000-barrel increase in gasoline stocks.

(Additional reporting by Angela Moon in Seoul and Santosh Menon in London)

OPEC Update