Brent creeps up ahead of Fed, economy weighs

LONDON: Brent crude futures pushed slightly higher on Wednesday but moves were muted as investors awaited a US Federal Reserve policy meeting in which the bank is expected to announce further steps to stimulate the economy.

Brent crude gained 23 cents to $110.77 a barrel at 0811 GMT, after slipping as low as $110.08. US crude for November delivery fell 24 cents to $86.68.

Brent crude has been supported by supply disruption caused by outages from producers in the North Sea, and due to the war in Libya which cut off a significant stream of high quality oil.

However the overthrow of Gaddafi in Libya and an increasingly bleak economic outlook has kept many analysts bearish on the longer term prospects for oil prices.

"There's set to be weaker growth as shown by the IMF which points to lower oil demand and production in Libya is coming on stream faster than expected," Christophe Barret, analyst at Credit Agricole Corporate & Investment Bank said.

The International Monetary Fund on Tuesday sounded the latest warning about growth, saying that the United States and Europe could slip back into recession, a factor that weighed on oil prices earlier in the day.

The Fed is expected to announce plans to intervene in the bond market to push long-term interest rates -- already near historic lows -- even lower.

Barret said that a decision by the Fed to stock up on longer-term Treasury notes as expected, may initially be supportive of crude prices, but that it would have negligible longer term impact.

"What matters is the supply-demand balance, slow growth matters more than monetary easing."

A surprise build in crude stocks in the world's top oil consumer added to pressure on the US benchmark.

GREEK CUTS EASE WORRIES

The IMF's comments overshadowed a slight easing of worries over Europe's debt after Greece promised further cuts to its public sector before a second conference call with international lenders.

"Uncertainty over the rate of progress and possible direction of intergovernmental negotiations on debt restructuring continues to inject volatility into financial markets," analysts at JPMorgan said in a report.

Data from the American Petroleum Institute showed an unexpected build in US crude oil inventories, compared with analyst expectations for a draw, in the week to Sept. 16. Gasoline and distillate stockpiles rose slightly.

The market will now be watching out for the weekly report from the US Energy Information Administration, due out at 1430 GMT on Wednesday.

Producers may intensify efforts to curb output if Brent falls towards $100 a barrel because many of the Middle East crude exporters may have to spend heavily on social programmes for some time to prevent public upheaval, and this will require higher income from oil shipments, JPMorgan said.

"Ongoing strife in the Middle East reminds us that while the conflict in Libya is drawing to a close, the regional protests for government reform have not gone away," the report said.

Copyright Reuters, 2011
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