Oil surged nearly 9 percent to over $54 a barrel on Monday on expectations that OPEC will cut output again and as stock markets rallied off the U.S. government's plan to rescue U.S. bank Citigroup.

OPEC president Chakib Khelil said a further output cut of more than 1 million barrels per day would be necessary to support the the oil market in its current state.

U.S. crude rose $4.42 to $54.35. The contract had dipped to a 3-1/2-year low of $48.25 on Friday. Brent crude was up $4.29 at $53.48.

The market's rise this morning is "part of a broader reaction to a firmer equity market and a weaker U.S. dollar," said Tim Evans energy analyst for Citi Futures Perspective.

"We continue to see evidence of an OPEC consensus for a further production cut when the cartel meets on Saturday," he added.

OPEC oil ministers meet for informal talks in Cairo on Nov. 29, though a cut is not expected to be annouced until the next full policy meeting in December.

Some OPEC members have called for a further cut in output after a previous cut on Nov.1 failed to curb oil's steep drop from record highs over $147 a barrel in July.

Venezuela said on Sunday OPEC should cut supply further. Iran made similar remarks on Monday.

U.S. stocks rose as investors reacted to Washingtons' decision to pump $20 billion into Citigroup, averting anoher U.S. bank collapse.

The dollar weakened against a basket of other major currencies, also supporting crude. Dollar weakness can increase the appeal of oil and other commodities as an investment.

Analysts said the market would watch U.S. President-elect Barack Obama's announcement of his economic team later in the day, as he worked on a stimulus plan designed to lift the country out of its worst financial crisis in decades.