Oil prices edged higher Tuesday in anticipation of a key Federal Reserve meeting and a U.S. oil inventory report that is expected to show a decline in gasoline stocks.
Light sweet crude for October delivery on the New York Mercantile Exchange settled at $97.17, up 63 cents, or 0.7%. Brent oil futures settled at $115.40, up 59 cents.
Analysts said traders were reluctant to be caught with bets that crude would fall-known as being "short"-ahead of a crucial Federal Reserve meeting that kicks off Wednesday. Last month, Fed Chairman Ben Bernanke hinted that the central bank could undertake a third round of quantitative easing.
"People are going to be a little hesitant to be short heading into the Fed meeting," said Phil Flynn, an analyst with the Price Futures Group in Chicago.
A move to undertake quantitative easing could boost oil by stimulating the economy and eroding the value of the U.S. dollar, thereby making crude cheaper for countries that trade other currencies.
Market participants are also eyeing the weekly U.S. oil inventory report due to be released Wednesday. Gasoline inventories are projected to fall by 1.5 million barrels, while crude inventories are expected to drop by 2.2 million barrels, according to a Dow Jones Newswires survey of 13 analysts. Traders will focus especially on the gasoline numbers given that inventories are tight, said Hamza Khan, an analyst with the Schork Group, a commodity research firm.
"People are likely looking to get a head start on tomorrow's bullish data by bidding prices higher today," Mr. Khan said.
Also closely eyed this week will be a ruling by Germany's Federal Constitutional Court on whether the euro zone's permanent bailout fund aimed at stemming the sovereign-debt crisis and the fiscal pact on states' budget limits are in keeping with the German constitution.
Although analysts don't expect the court to block the fund, it could call for more limits and conditions so the German parliament has a say on future aid.
The Federal Reserve meeting takes place Wednesday and Thursday. The German court is expected to rule Wednesday.
Oil prices also got a lift Tuesday from news that Moody's Investor Service is considering downgrading the U.S.'s credit rating, said Mr. Flynn. The Moody's news gave the euro a lift against the dollar.
"The warning did give the euro a boost, which also gave oil a boost," he said.
The coming days will also see the release of a report on the outlook for oil and energy markets. On Tuesday, the Organization of Petroleum Exporting Countries maintained its oil-growth outlook for 2012 but said, "Downside risk exists as the economic slowdown in the developed countries could increasingly spill over into the non-OECD."
Some analysts think a move by the Federal Reserve to undertake another round of easing might not have much impact because it is already priced into oil.
Action from the Fed "has likely been discounted, [and a] 'buy the rumor, sell the news' scenario could easily unfold across the petroleum complex this week, as was the case with last week's ECB release," said Jim Ritterbusch, head of the trading advisory Ritterbusch and Associates.
Front-month reformulated gasoline blendstock, or RBOB, closed at $3.044 per gallon, up 2 cents. Front-month heating oil closed at $3.186, up 1.7 cents.
Copyright (c) 2012 Dow Jones & Company, Inc.
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