LONDON: Brent oil futures held above $108 a barrel on Wednesday with investors reluctant to lock in positions ahead of a U.S. Federal Reserve policy decision on a plan to trim its monetary stimulus.
Fed Chairman Ben Bernanke is expected to give details later on when the U.S. central bank may start to reduce its $85 billion-a-month bond-buying programme which has underpinned global assets including commodities and restrained the dollar.
Brent crude fell 10 cents to $108.34 by 1323 GMT, after settling nearly $1 lower on Tuesday. U.S. oil rose 17 cents to $97.39, after ending 26 cents lower.
"Today the market will focus on the FOMC's (Federal Open Markets Committee) December policy statement where any dollar bullish sentiment would add to Brent's downside," said VTB Capital analyst Andrey Kryuchenkov.
A steady run of firm U.S. economic data in recent weeks has raised speculation the Fed could reduce its bond buying, known as quantitative easing or QE, at its policy meeting ending later in the day.
"The market is mixed as to whether or not the U.S. Fed will announce a tapering programme of its massive QE3 stimulus buying that has been adding $85 billion per month to the economy," said Dominick Chirichella of the Energy Management Institute.
"The U.S economy has been improving over the last several months but the main question facing the Fed is (whether) the economic improvement of late is sustainable and will the economy continue to expand enough to continue to lower the still large unemployment problem in the U.S?"
US STOCKS, SPREAD
U.S. oil was supported by demand growth hopes at the world's largest oil consumer after industry data showed a larger-than-expected fall in crude stockpiles.
Investors are now awaiting data from the U.S. Energy Information Administration (EIA) for a clearer picture of the country's demand outlook.
Expectations of a fall in U.S. crude inventories are supporting the U.S. benchmark, while easing demand due to refinery shutdowns in France are weighing on Brent, narrowing the difference between the two. The spread ended at its narrowest since early November, under $11 a barrel.
"The price gap between the two key benchmarks - WTI and Brent - has exhibited considerably more dynamism of late than the oil prices themselves, having once again narrowed. This was doubtless due in part to yesterday's report from the API that U.S. crude oil stocks had further declined by 2.5 million barrels," analysts at Commerzbank said in a note.
Markets are also watching if tensions in South Sudan will worsen. The United Nations received reports that between 400 and 500 people had been killed and up to 800 wounded in the latest violence, and the government said it had arrested 10 politicians in connection with a "foiled coup".
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