Investors eye global outlook as Fed Reserve warns Europe's turmoil poses risk to US economy
Brent crude slipped towards $109 on Wednesday ahead of an OPEC meet as oil investors turned their attention to the global growth outlook after the US Federal Reserve warned that the turmoil in Europe posed a risk to the US economy.
Jitters over Iran and threats to key shipping lanes drove up oil prices by more than $2 to post its biggest gain since late November on Tuesday, in sharp contrast to a fall in most other financial markets. That has prompted some to book profits.
Brent crude slipped 31 cents to $109.19 a barrel by 0618 GMT, after posting the biggest one-day rise since Nov 28 to settle $2.24 higher. US crude slipped 14 cents to $100, after jumping 2.4 percent, the biggest since Nov 16.
"There is some profit-taking we are seeing today after oil surged so high yesterday," said Tetsu Emori, a fund manager with Astramax in Tokyo.
"Participants are now focusing back on the European crisis, and that is prompting a broad fall across commodities. We have the OPEC meet, but the situation in Europe is crucial."
Crude futures briefly surged nearly $4 a barrel after markets opened in New York in the previous session in a furious burst of trading. Other commodities did not jump, and traders remained unable to pinpoint a specific trigger for the surge.
Oil would stay supported around current levels because of concerns over supply disruption and very little spare capacity remaining with top exporters, while demand from emerging markets such as China continues to be strong, Emori said.
OPEC's oil price hawks looked set to accept a new group output target that legitimises a big increase in supply over the last six months from rival producers Saudi Arabia and its Gulf allies.
The expected agreement would put a 30-million barrel-a-day cap on output for all 12 OPEC members for the first half of the year, keeping production near 3-year highs.
A deal expected at a Wednesday meeting should restore some credibility to the Organization of the Petroleum Exporting Countries after talks fell apart in June and left the cartel without its normal self-imposed output constraints.
"Oil market balances have softened since the previous meeting, due to a combination of slower demand growth and, more importantly, the partial return of Libyan volumes," analysts at Barclays said in a note.
Oil ministers from the two biggest producers and main protagonists at June's bad-tempered meeting, Saudi Arabia and Iran, met face to face on Tuesday. "We had a friendly chat," said Iranian Oil Minister Rostam Qasemi after the meeting with Ali al-Naimi. "Everything is OK."
"With growing concerns about Iran's nuclear capabilities, western sanctions and potential tail risk outcomes, Saudi Arabia will be wary of the possibility of overshooting oil prices and, hence, cognisant of maintaining a sufficient spare capacity buffer," the Barclays note said.
Asian shares drifted lower and the euro floundered near an 11-month low on Wednesday, while copper fell for a third day and gold slipped to its lowest in nearly two months as the US Fed failed to take any new steps to stimulate growth.
Yet, some saw that as a possible move by the central bank to keep policy options open in case the global economic outlook worsens due to Europe's debt crisis.
"It only makes sense that the Fed saves its bullets in case things fall right off the cliff in Europe," said Ben Le Brun, market analyst at OptionsXpress.
Oil was also under pressure from an industry report that showed crude stocks in the world's largest consumer, the United States, rose 462,000 barrels in the week to Dec. 9, compared with analysts' expectations for a fall of 2 million barrels.
Distillate stocks rose 1.2 million barrels versus a forecast for an 800,000-barrel gain.