Brent oil fell by nearly $1 on Tuesday, pressured by the spectre of the U.S. Federal Reserve tapering its monetary stimulus program. U.S. oil also ended lower, but not by as much, tightening the spread between the two benchmarks.
The Fed's policy-making Federal Open Market Committee is meeting on Tuesday and Wednesday during which officials could decide to trim the Fed's $85 billion asset purchasing program, should they interpret recent strong U.S. economic data to mean the economy is recovering.
Scaling back the program could boost the dollar and weigh on dollar-denominated commodities, including oil, and indirectly curb investment flows into those markets. The U.S. dollar index , a measure of the greenback against a basket of currencies, was virtually flat, after rising in mid-afternoon trading.
Oil prices fell, U.S. stocks edged lower and U.S. gold futures plunged by more than 1 percent as markets awaited news from the Fed.
"A stronger dollar at least temporarily is putting a downward pressure on the market, especially Brent," said Rich Ilczyszyn, chief market strategist and founder of iitrader.com LLC in Chicago.
Traders also sold Brent to take profit after prices gained 1.5 percent in the previous session on the back of continued unrest in Libya, which curtailed oil supply.
Brent futures for February settled 97 cents lower at $108.44. U.S. crude oil futures settled 26 cents lower at $97.22, after trading as high as $97.90.
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