Crude futures settled lower Tuesday, paring earlier gains as a two-day meeting of the US' Federal Open Market Committee got under way and investor optimism over the likelihood of a new round of stimulus eased.
NYMEX September crude futures settled $1.72 lower at $88.06/barrel after trading up to $90.30/b earlier in the session. ICE September Brent settled down $1.28 at $104.92/b.
NYMEX August heating oil settled 3.74 cents lower at $2.8417/gal and August RBOB settled 2.22 cents lower at $2.9146/gal on both contracts' day of expiration.
Speculation was swirling that the US Federal Reserve is now anticipating a possible move toward more quantitative easing in September rather than this week, as length in NYMEX crude and ICE Brent appeared to be cashing out, said Mike Guido, managing director of energy markets at Macquarie.
"Although weekly [oil] stats are expected to be supportive, the overall supply and demand picture on oil is just not strong enough to unilaterally support the market without coordinated stimulus," Guido said.
Guido added that from a macro point of view, oil is now in a "show me" mode, with spreads and flat prices now under pressure as a result.
Carl Larry of Oil Outlooks concurred that investors now appear to be hedging bets that there will be no action with the US Fed until September.
"That's going to take some of the air out of the oil markets and we'll continue lower until we see where the dust settles after the unemployment number on Friday," Larry said.
However, he added that the markets could all turn around quickly if another round of quantitative easing is announced on Wednesday by the Federal Open Market Committee.
But Peter Hooper, managing director and chief economist at Deutsche Bank Securities, said in a research note that while recent US economic data has been disappointing, it is still just mixed enough to not yet warrant a clear call of more monetary policy easing at the August FOMC meeting.
"Given the absence of a forecast update and a press conference to explain a policy change, the mixed data picture would make a policy change at this juncture awkward," he said.
He added that if the labor market and activity data for July and August continue to disappoint, the FOMC would step in with a possible launch of a third round of quantitative easing, or QE3.
The US FOMC will release a statement on Wednesday at 2:15 pm EDT (1815 GMT), while the European Central Bank will hold a press conference on Thursday at 8:30 am EDT (1230 GMT).
