Oil pops higher, stocks rally as U.S. debates lifting oil export ban

Oil has begun to reverse its declines and stock markets are rallying worldwide ahead of an expected Fed interest rate hike on Wednesday.

West Texas Intermediate oil, the main North American contract, rose 2.2 per cent or 82 cents to $37.13 US a barrel on Tuesday afternoon, after falling steadily since the beginning of the month.

• Gas should be much cheaper with fall in oil prices, BMO says

That's when the Organization of Petroleum Exporting Countries failed to put any cap on its production, raising the spectre of a continued oversupply of oil.

But there was more optimism in the U.S. oilpatch today as the U.S. Congress tussled with an omnibus bill that could allow oil exports from the U.S.

Exports from the U.S. to anyone but NAFTA partners, Canada and Mexico, have been banned since the oil shortage of the 1970s.

But Democrats in Congress were believed ready to trade acceptance of some of President Barack Obama's environmental initiatives in return for supporting a Republican push to revive oil exporting.

That could open opportunities for North American oil firms in European countries who are weaning themselves from Russian oil, as well as in Asia.

Oil has by no means recovered, and there are still plenty of bears, such as Citigroup, who is forecasting $20 oil if stockpiles rise any higher.

WTI oil is still down 30 per cent on the year and Western Canada Select, a Canadian oilsands contract, was trading at $23.50 US at the close.

Warm weather in the Northeast of the continent is still slamming natural gas prices, which are at a 14-year low.

Meanwhile tension in stock and bond markets was easing ahead of the Fed decision on Wednesday.

Consumer price figures out of the U.S. today seemed to show a slight rise in core inflation, setting the stage for a rate hike. About 76 per cent of traders believed it would make the long-anticipated move tomorrow.

The Dow was up 156points to 17,524, following markets in Europe and Asia higher.

The TSX enjoyed a rally on stronger oil, rising 226 points or 1.8 per cent to 12,924. Toronto stocks have been losing ground in time with oil since the beginning of the month.