Inflationary U.S. bailout may boost oil: Merrill

LONDON (Reuters) - The inflationary effects of the U.S. government's finance sector bailout could drive oil back above $150 a barrel in the long term, a Merrill Lynch commodities specialist said on Tuesday.

"Near term, the oil price could drop due to the negative effects on the global economy of the ongoing credit contraction," Francisco Blanch, Merrill Lynch's global head, commodities research, told a commodities conference.

"The (U.S.) government-sponsored bank bailout is inflationary and we believe the oil price will go back above $150 per barrel in the long run," he added.

Blanche did not give a precise timeframe.

Oil has fallen nearly 40 percent from a record peak of more than $147 in July and reached its lowest in eight months on Monday at $87.56 a barrel.

Prices have come under pressure from expectations of lower demand if the credit crisis tips U.S. and European economies into recession.

Oil was up about $2 a barrel on Tuesday after a large interest rate cut by Australia's central bank aroused hopes that other policymakers would follow suit to stem the credit crisis.

Blanch highlighted coal as a fuel that would play a bigger role in the years ahead, as reserves were plentiful and new technology allowed cleaner usage.

"With the world likely turning to coal, a dirtier fuel than natural gas, emissions prices will likely increase," he added, without giving details.

The three-day Commodties Week 2008 conference is organized by Terrapinn.

(Reporting by David Brough; editing by Michael Roddy)