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 Investors are awaiting details from the Federal Reserve later this
week on when it may start to reduce its $85 billion-a-month
bond-buying programme, a major driver of investment in global
commodities. Yet, a prolonged halt in Libyan exports amid an
improving demand outlook may help stem the slide in oil.
Brent crude fell 22 cents to $109.19 a barrel by 0305 GMT, after
settling $1.64 higher. U.S. oil also dropped 22 cents to $97.26,
after ending 88 cents higher.
"What we are seeing now is some clearing up of positions ahead of
the Fed meet after Brent rose past the $110 mark," said Tetsu Emori,
a commodities fund manager at Astmax Investments. "But demand side
is getting healthy. China is coming back, Europe is getting better
and so is the United States. That will keep prices supported."
Global manufacturing and business activity expanded in December as
euro zone businesses ended the year on a high thanks to a surge in
new orders. The December PMI reading for Europe was the
second-highest since mid-2011 and beat the median forecast in a
Reuters poll.
Over in the United States, manufacturing output rose for a fourth
straight month in November, adding to solid reports on retail sales
and employment that have painted an upbeat picture of the world's
biggest economy.
The spate of positive numbers from the United States is convincing
some investors to expect the Fed to announce a tapering after its
two-day meeting on Wednesday. Others expect the central bank to wait
for more concrete evidence of an economic recovery before tapering
the stimulus.
OUTLOOK
This overall economic improvement in developed nations is reviving
hopes of steady demand growth and any worries over supply from the
Middle East will keep Brent above $110 a barrel and U.S. oil above
$98 as the market is already coping with disruptions in Libya, Emori
said.
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For now, the Energy Information Administration's (EIA) latest report
on U.S. crude production reaching historic highs by 2019 is capping
the upside in oil, he said.
A European Union governments' pledge to suspend some sanctions
against Iran as soon as the U.N. nuclear watchdog verifies that
Tehran has curbed its atomic work under a landmark deal last month
is also weighing on prices.
Investors are also awaiting data on U.S. crude stockpiles to gauge
the demand outlook for the world's biggest oil consumer. Commercial
crude inventories fell an average of 3.6 million barrels last week
because of declining imports, a preliminary Reuters poll of analysts
showed.
On the refined products side, distillate stocks, which include
heating oil and diesel fuel, may have risen 500,000 barrels and
gasoline stocks may have increased 2.4 million barrels, the poll
showed.
(Editing by Muralikumar Anantharaman)
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