Oil prices approach $42 as investors eyed an $800 billion-plus U.S. stimulus package aimed at increasing oil demand.

Light, sweet crude for March delivery rose $1.65 to $41.21 a barrel by midafternoon in Europe on the New York Mercantile Exchange. The contract fell 61 cents overnight to settle at $39.56.

President Barack Obama pressed his case for the stimulus plan Monday, warning that failing to act swiftly could turn a crisis into a catastrophe, the Associated Press reported.

There could be a $3 or $4 premium once the package comes through, but it's pretty much been priced in already, said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne. Going forward, the market will be looking for evidence that it's really having an impact on demand.

London Brent crude gained $2.10 to $48.12 a barrel, maintaining its premium against U.S. prices.

The market largely brushed off comments Monday from OPEC Secretary General Abdalla el-Badri that the cartel would postpone 35 of 150 new oil and gas projects after crude prices have collapsed from near $150 in July.

According to El-Badri, the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply, has completed about 80 percent of 4.2 million barrels per day of production cuts announced since September, the Associated Press reported.

The worst U.S. recession in decades has led to a surge in layoffs, undermining consumer demand and sales of crude products.

A report Tuesday by the American Petroleum Institute, the industry's trade association, is expected to show that oil stocks rose 3.4 million barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.