Forexpros – Crude oil futures turned higher during U.S. morning trade on Tuesday, reversing earlier losses amid speculation the Federal Reserve will announce further economic stimulus measures after its monetary policy meeting.
Gains were limited as markets eyed developments in Greece, where political leaders were attempting to form a solid coalition government, while concerns over the debt crisis in the euro zone also weighed.
Oil traders were also focusing on a second day of talks between Iran and world powers over Tehran’s disputed nuclear program in Moscow.
On the New York Mercantile Exchange, light sweet crude futures for delivery in July traded at USD83.94 a barrel during U.S. morning trade, gaining 1.1%.
The July contract is due to expire at the end of Wednesday’s trading session. Contract expiration often leads to volatile sessions as market participants look to close out positions or reposition their portfolios.
Meanwhile, the more actively traded contract for August delivery rose 0.9% to trade at USD84.33 a barrel. It earlier fell by as much as 0.8% to trade at a session low of USD82.63 a barrel.
The Fed’s two-day meeting starts on Tuesday with an announcement expected on Wednesday afternoon.
A growing number of Fed watchers expect the central bank to extend its Operation Twist program, in which it sells short-term bonds to buy long-term ones. The current USD400 billion Twist program is set to expire at the end of June.
The growing easing expectations weighed on the U.S. dollar. The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was down 0.3% to trade at 81.99.
Dollar-denominated oil futures contracts tend to rise when the dollar falls, as this makes oil cheaper for buyers in other currencies.
Investors also awaited the outcome of a Group of 20 summit in Mexico, amid hopes it could produce fresh measures to combat the crisis in Europe.
In a statement, G-20 leaders said they will “take the necessary actions” to strengthen the global economy, and if growth weakens substantially, countries without heavy debt loads stand ready to stimulate their economies, according to a draft communiqu? from the summit.
But gains were limited as markets continued to monitor political developments in Greece. Bloomberg reported earlier in the day that Greek political leaders may seek relief from austerity measures, citing a Pasok party official who declined to be identified.
Spain’s deteriorating fiscal health remained in focus. Earlier Tuesday, Madrid saw short-term borrowing costs rise sharply at an auction of government bonds.
The yield on Spanish 10-year bonds eased back to 7.05% from a session high of 7.19%, but remained above the critical 7% threshold amid concerns that a EUR100 billion bailout agreed earlier this month may not be enough to overhaul the country’s ailing banking system.
Reports surfaced earlier in the day that the full audit of the Spanish banks has been delayed from July to September, fuelling fears that the banks may need more funds than originally thought.
Spain became the fourth euro zone nation to seek a rescue last week. Some investors fear it is only a matter of time before the country requires a full sovereign bailout.
Oil traders were also looking ahead to fresh weekly information on U.S. stockpiles of crude and refined products to gauge the strength of oil demand in the world’s largest oil consumer.
The American Petroleum Institute will release its inventories report later in the day, while Wednesday’s government report could show crude stockpiles fell by 1.0 million barrels.
The U.S. is the world’s biggest oil-consuming country, responsible for almost 22% of global oil demand.
Elsewhere, on the ICE Futures Exchange, Brent oil futures for August delivery rose 0.45% to trade at 96.47 a barrel, with the spread between the Brent and crude contracts standing at USD12.14.
Prices fell to USD94.50 a barrel earlier in the day, the lowest since January 10, 2011.
London-traded Brent prices are down nearly 25% since hitting an intraday high of USD128.38 on March 1.
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