Oil rises past $106 ahead of Fed policy decision

The price of oil recouped some recent losses and rose to over $106 a barrel Wednesday as traders prepared for an expected reduction in the U.S. Federal Reserve's massive monetary stimulus.

By early afternoon in Europe, benchmark oil for October delivery was up 66 cents to $106.08 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.17 to close at $105.42 on Tuesday. Oil fell $1.62 on Monday.

Following the 2008 financial crisis, the U.S. central bank has been buying bonds and other assets to push down interest rates and make loans more available. Global stocks and commodities surged as the new money generated by the unconventional program, which is currently running at $85 billion a month, flowed through the financial system.

The Fed, however, is widely expected to begin winding down the program as the U.S. economy shows signs of a sustained albeit gradual recovery and could announce the first reduction on Wednesday following a two-day policy meeting.

The prospect of a reduction in stimulus pushed down oil prices earlier this week, but now traders are looking ahead, seemingly less fearful of the impact of "tapering," since analysts believe the Fed will keep official interest rates low to keep the U.S.

economy chugging along.

Analysts at Capital Economics said in a commentary that "a small reduction is probably now discounted and the Fed may choose to reiterate its conditional commitment to keep interest rates very low for a long period."

Investors will also be monitoring fresh information on U.S. stockpiles of crude and refined products.

U.S. Energy Department data released later Wednesday for the week ended Sept. 6 are expected to show a decline of 1.5 million barrels in crude oil stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

A report cited by analysts from the industry-funded American Petroleum Institute said crude stocks fell by 252,000 barrels late week.

Oil prices broke above $110 again earlier this month when a U.S.-led attack on Syria seemed imminent because of the regime's alleged use of chemical weapons. However, a deal last weekend between the U.S. and Russia to get Syria to quickly hand over its stockpiles of chemical weapons has reduced the tensions that had raised oil prices.

Brent crude, the benchmark for international crudes used by many U.S. refineries, was up 18 cents to $108.37 a barrel on the ICE Futures exchange in London.

In other energy futures trading in New York:

Wholesale gasoline rose 0.99 cent to $2.6594 per gallon.

Natural gas fell 0.6 cent at $3.739 per 1,000 cubic feet.

Heating oil declined 0.42 cent to $2.9941 per gallon.

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Pamela Sampson in Bangkok contributed to this report.

This story has been automatically published from the Associated Press wire which uses US spellings

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