NEW YORK - OIL prices rebounded from heavy losses on Monday as equity markets surged after the latest government actions aimed to shore up a severe economic downturn.

Light sweet crude for January delivery soared by US$4.57 to close at US$54.22 a barrel on the New York Mercantile Exchange.

In London, Brent North Sea crude for January rallied US$4.74 to settle at US$53.93.

The gains came as Europe's main stock markets surged around 10 per cent after the US government pumped billions of dollars into ailing US bank Citigroup and as Great Britain unveiled a mammoth financial stimulus package worth 20 billion pounds (S$45 billion).

'The increasing prospect of an Opec supply cut' also benefited oil prices, said Mr Nimit Khamar, an energy market analyst for Sucden brokers in London.

Iran, Opec's second biggest producer, said on Monday that output needed cuts as weak energy demand weighed heavily on prices.

The Organisation of Petroleum Exporting Countries 'decided to cut production by 1.5 million barrels (a day starting on Nov 1) but it could not stop oil prices from falling,' Iranian Opec envoy Mohammad Ali Khatbi was quoted as saying by the Resalat daily.

Also fuelling the change in financial markets was the US government's announcement to inject another US$20 billion (S$30 billion) into ailing banking giant Citigroup and to guarantee some US$306 billion in the bank's troubled assets.

'A shot of confidence off the Citi bailout and renewed possibility that Opec will cut production further has supplied upward momentum to overnight,' said Mr Mike Fitzpatrick at MF Global, a leading independent broker.

'Whatever the cause, participants seem to be searching for positives, as opposed to the gloom of last week. Whether this is a harbinger of a reversal is too early to tell, but it seems the economic rationale has more of a presence this week than last.'

Oil prices last week slumped below US$50, reaching their lowest levels for almost four years in London. Prices dropped two-thirds since striking record highs of above US$147 in July, when fears of supply disruptions sent them rocketing.

Opec, which pumps 40 per cent of world crude, is to hold an extraordinary meeting on Saturday in Egypt amid speculation that member nations will agree to cut output again in a bid to boost plunging oil prices.

In Cairo, Opec member Venezuela will seek a cut in production of 1.0 million barrels per day by the end of the year, Venezuelan Energy Minister Rafael Ramirez said on Sunday.

'Venezuela will propose a new cut in production at the next meeting of the Organisation of Petroleum Exporting Countries,' Mr Ramirez said in a statement.

The reduction 'should be effective before year's end', he added.

Opec agreed on Oct 24 to reduce production by 1.5 million barrels per day starting on Nov1 but prices have since continued to slide. -- AFP