Oil hovers near $87 ahead of US Fed policy meeting

[September 21, 2011]  SINGAPORE (AP) -- Oil prices hovered below $87 a barrel Wednesday in Asia as traders looked to a U.S. Federal Reserve meeting for possible stimulus measures to spur economic growth.

Benchmark oil for October delivery was down 16 cents at $86.76 at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. Crude rose $1.11 to settle at $86.92 on Tuesday.

In London, Brent crude for November delivery was up 9 cents at $110.63 on the ICE Futures exchange.

Investors will be closely watching the U.S. Federal Reserve's two-day meeting, which ends later today. Some investors expect the Fed to announce a plan to sell short-term Treasury bonds and buy longer-term ones -- a policy dubbed "twist" -- in a bid to spur economic growth.

"It would theoretically lower long-term interest rates," energy consultant Cameron Hanover said in a report. "We would be surprised if any sudden, new course was decided."

Signs of sluggish U.S crude demand weighed on prices. The American Petroleum Institute said late Tuesday that crude inventories rose 2.6 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted a drop of 1.0 million barrels.

Inventories of gasoline added 62,000 barrels last week while distillates increased 81,000 barrels, the API said.

The Energy Department's Energy Information Administration reports its weekly supply data later Wednesday.

In other Nymex trading for November contracts, heating oil rose 0.2 cents at $2.97 per gallon and gasoline futures gained 0.8 cents to $2.69 per gallon. Natural gas for October delivery fell 0.3 cents to $3.80 per 1,000 cubic feet.

[Associated Press; By ALEX KENNEDY]

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