The price of oil edged down to near $97 a barrel Tuesday as investors waited to see whether or not the U.S. Federal Reserve would decide to start reducing its monetary stimulus this week.
By early afternoon in Europe, benchmark U.S. crude for January delivery was down 28 cents to $97.20 a barrel in electronic trading on the New York Mercantile Exchange. On Monday, the Nymex contract added 88 cents to close at $97.48 a barrel.
Investors are increasingly beginning to think that the Fed could decide to start scaling back its $85 billion in asset purchases following the conclusion of its two-day meeting Wednesday. Such a pullback may result in the dollar strengthening, making commodities priced in dollars more costly for overseas investors.
Expectations of a possible tapering have swelled after solid U.S. economic data in recent weeks, including strong industrial production figures on Monday. Inflation data later will be closely monitored as benign price pressures have given the Fed room to continue with its stimulus and low interest rate policies.
Whatever the Fed does at this meeting, energy prices are expected to remain in check over the next few years, according to an annual report by the U.S. Energy Information Administration. It forecast that domestic oil output may rise to 9.5 million barrels per day by 2016, just shy of the 1970 record of 9.6 million barrels per day. The EIA also noted that imports should account for only 25 percent of U.S. oil demand in 2016, rising to 32 percent in 2040. That compares with 60 percent in 2005.
"Even if the U.S. does not export crude oil, rising oil product exports and lower U.S. demand for oil imports will have a positive impact on the global supply situation," said analysts at Commerzbank in Frankfurt in a note to clients.
Markets are also monitoring fresh information on U.S. stockpiles of crude and refined products. Data for the week ending Dec. 12 are expected to show a draw of 4 million barrels in crude oil stocks and a build of 1.4 million barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The American Petroleum Institute will release its report on oil stocks later Tuesday, while the report from the Energy Department's Energy Information Administration — the market benchmark — will be out on Wednesday.
In London, the February contract for Brent crude, a benchmark for international oils, was down 67 cents to 108.74 a barrel on the ICE Futures exchange. In other energy futures trading on the Nymex: — Wholesale gasoline fell 0.83 cent to $2.6503 a gallon.
— Heating oil lost 0.78 cent to $2.9815 a gallon. — Natural gas retreated 4.5 cents to $4.234 per 1,000 cubic feet.