LONDON: Oil fell on Wednesday, with investors cautious ahead of a US Federal Reserve meeting, and on lingering anxiety over the state of the euro zone, while gains in the dollar also weighed.
Brent crude for August fell 29 cents to $110.66 a barrel by 1116 GMT, after rising to as much as $111.69. US light crude oil slipped to a low of $93.24 a barrel and was down 65 cents at $93.52 a barrel by 1116 GMT.
Greece’s embattled government survived a confidence vote to avoid a debt default which helped ease concerns on the vulnerability of risky assets.
However, investors were still wary over risky assets as Greek Prime Minister Papandreou still had to push through austerity measures next week to secure a €12 billion lifeline readied by international lenders to save the country from default.
And Spain faces considerable risks to its recovery and must deepen and conclude reform work to allay market concerns, the International Monetary Fund said on Tuesday.
"There are ongoing jitters, a sense that we are not out of the woods yet, and oil is taking its lead from macro factors," Helen Henton, head of commodities research at Standard Chartered said.
Oil was also pressured as the dollar index gained 0.3 percent, as a rising US currency makes crude less attractive to holders of other currencies.
US crude underperformed as data showed stocks in the United States fell less than expected. Investors will get further insight into the state of demand from the world’s largest economy at 1430 GMT when the Energy Information Administration releases its weekly petroleum and stocks output data.
"We expect US economic data and oil data to start improving going forward, and we think that unrest in the Middle East will help maintain the risk premium, at least until elections in Egypt in September and November," Henton said.
The Brent premium to US crude was at $17.17 after it slipped to as low as $16.31 on Tuesday. It rose as high as $23.34 last week on worries about North Sea output and stockpile buildups in the United States.
More North Sea Forties crude oil cargoes have been delayed in July due to work on offshore oil platforms and infrastructure, trade sources said on Tuesday.
The market will be looking to the Fed for clues about its handling of the faltering economic recovery.
The Federal Reserve is likely to acknowledge renewed weakness in the US economy in a post-meeting policy statement on Wednesday, but may not take any action.
"We are going to see cautious trading take place ahead of the release of the Fed’s statement," said Serene Lim, an oil analyst at ANZ in Singapore.
"The market will be watching for any shift, any change in the tone, any change in the words."
In Europe, the International Monetary Fund’s warning about risks to Spain added to concerns about the euro zone.
Oil stocks fell by 81,000 barrels last week as refinery utilization rose, American Petroleum Institute data showed. Analysts had expected a drop of 1.4 million barrels in crude stocks for the week to June 17.
US Independence Day holiday travel next month will fall 2.5 percent from a year ago as expensive gasoline eats into driving demand, travel group AAA forecast on Wednesday.
Stock markets from the US to South Korea gained after Prime Minister George Papandreou won the confidence vote, but European markets retreated, as there is still plenty of uncertainty. –Additional reporting by Manash Goswami in Singapore
