Oil slips to near $106 ahead of Fed policy meeting

The price of oil slipped to near $106 a barrel Tuesday as investors got ready for an expected reduction in the U.S. Federal Reserve's monetary stimulus.

By early afternoon in Europe, benchmark oil for October delivery was down 51 cents to $106.08 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.62 to close at $106.59 on Monday.

The central bank has been buying financial assets, such as bonds, over the past few years in an attempt to push down interest rates and make loans more easily available. Global stocks and commodities surged as the new money generated by the program currently running at $85 billion a month flowed through the financial system.

But recent data have shown the U.S. is slowly recovering from the severe downturn that followed the collapse of Lehman Brothers in 2008, convincing Fed members that it might be time to wind down the stimulus program. Oil markets have reacted negatively to the prospect that the stimulus will start to be reduced so-called tapering at the end of the two-day policy meeting on Wednesday.

"Tapering might derail the recovery, and if that happens, there is less growth and then less demand for commodities like oil," said Stan Shamu, market analyst at IG in Melbourne, Australia.

Prices were also under pressure from the deal on Syria's chemical weapons and reports signaling the return of Libyan crude to the market, where production and exports had slowed to a trickle due to labor conflicts and technical glitches.

"The Middle East risk premium has started to dissolve in the crude oil prices after concerns about a possible military action in Syria eased," analysts at Sucden Financial Research in London said in a note. "Libyan oil production is expected to increase to 400,000-450,000 barrels a day in the next few days as the El Sharara field has restarted."

Investors will also be monitoring fresh information on U.S. stockpiles of crude and refined products.

Data for the week ending Sept. 6 are expected to show a draw of 1.5 million barrels in crude oil stocks, while gasoline stocks are expected to remain unchanged according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

The American Petroleum Institute will release its report on oil stocks later Tuesday, while the report from the Energy Department's Energy Information Administration the market benchmark will be out on Wednesday.

The contract for November delivery for Brent crude, the benchmark for international crudes used by many U.S. refineries, was down 55 cents to $109.52 a barrel on the ICE Futures exchange in London.

In other energy futures trading in New York:

Wholesale gasoline fell 0.5 cent to $2.7015 per gallon.

Natural gas rose 1.9 cents to $3.757 per 1,000 cubic feet.

Heating oil declined 1.29 cents to $3.0508 per gallon.

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Pamela Sampson in Bangkok contributed to this report.