Oil prices rebounded to near $38 a barrel Tuesday as OPEC output cuts outweighed expectations that crude demand will weaken amid the severe global economic slowdown.

Comments from Federal Reserve Chairman Ben Bernanke saying that the stimulus package being crafted by President-elect Barack Obama and Congress could provide a "significant boost" to the sinking U.S. economy also helped lift the market.

By mid-afternoon in Europe, light, sweet crude for February delivery was up 35 cents to $37.94 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, prices fell as low as $36.10 and then briefly exceeded $38 before retreating.

In London, February Brent crude rose $1.21 to $44.12 a barrel on the ICE Futures exchange.

Saudi Arabia, the largest producer in the Organization of the Petroleum Exporting Countries, announced during the weekend that it would cut oil output by about 300,000 barrels per day below its recently agreed OPEC quota.

"OPEC is starting to get concerned � again � and the ministers are determined to generate a rally," said a report from U.S. energy consultancy Cameron Hanover, which urged the U.S. government to increase the level of its Strategic Petroleum Reserves.

"It would help raise prices to a level that could get OPEC feeling less vulnerable (and less likely to cut output again) at the same time that it would save the surplus for later," Cameron Hanover said.

Prices of futures contracts for later this year are higher than the February contract on investor expectations that OPEC's announced production cuts of 4.2 million barrels a day since September will begin to reduce global supply.

The June contract was trading Tuesday at $51.11 a barrel.

"There's some wariness that the OPEC actions may cause markets to tighten up," said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney, who expects oil to average $55 a barrel this year.

Still, before Tuesday oil prices had fallen for five sessions in a row and continued to seem "susceptible to further declines," said an energy report from Sucden Financial Research in London.

"After some transient end-of-year strength, it would appear that crude oil bears have once again found their groove," said the Schork Report, edited by oil trader and analyst Stephen Schork.

Crude prices have fallen more than 25 percent since reaching just above $50 a barrel last week as traders returned from the holiday break to find evidence of falling manufacturing and consumer spending across the globe.