SINGAPORE: Brent futures slipped towards $109 a barrel on Tuesday as the biggest gain in two weeks overnight prompted investors to sell ahead of a key US Fed meet in which the central bank may take a decision on tapering its stimulus.
Investors are awaiting details from the Federal Reserve later this week on when it may start to reduce its $85 billion-a-month bond-buying programme, a major driver of investment in global commodities. Yet, a prolonged halt in Libyan exports amid an improving demand outlook may help stem the slide in oil.
Brent crude fell 22 cents to $109.19 a barrel by 0305 GMT, after settling $1.64 higher. US oil also dropped 22 cents to $97.26, after ending 88 cents higher.
"What we are seeing now is some clearing up of positions ahead of the Fed meet after Brent rose past the $110 mark," said Tetsu Emori, a commodities fund manager at Astmax Investments. "But demand side is getting healthy. China is coming back, Europe is getting better and so is the United States. That will keep prices supported." Global manufacturing and business activity expanded in December as euro zone businesses ended the year on a high thanks to a surge in new orders. The December PMI reading for Europe was the second-highest since mid-2011 and beat the median forecast in a Reuters poll.
Over in the United States, manufacturing output rose for a fourth straight month in November, adding to solid reports on retail sales and employment that have painted an upbeat picture of the world's biggest economy.
The spate of positive numbers from the United States is convincing some investors to expect the Fed to announce a tapering after its two-day meeting on Wednesday. Others expect the central bank to wait for more concrete evidence of an economic recovery before tapering the stimulus.
OUTLOOK
This overall economic improvement in developed nations is reviving hopes of steady demand growth and any worries over supply from the Middle East will keep Brent above $110 a barrel and US oil above $98 as the market is already coping with disruptions in Libya, Emori said.
For now, the Energy Information Administration's (EIA) latest report on US crude production reaching historic highs by 2019 is capping the upside in oil, he said.
A European Union governments' pledge to suspend some sanctions against Iran as soon as the UN nuclear watchdog verifies that Tehran has curbed its atomic work under a landmark deal last month is also weighing on prices.
Investors are also awaiting data on US crude stockpiles to gauge the demand outlook for the world's biggest oil consumer.
Commercial crude inventories fell an average of 3.6 million barrels last week because of declining imports, a preliminary Reuters poll of analysts showed. On the refined products side, distillate stocks, which include heating oil and diesel fuel, may have risen 500,000 barrels and gasoline stocks may have increased 2.4 million barrels, the poll showed.
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