UPDATE 6-Oil slips to around $74 ahead of Fed meeting

Published 09/21/2010, 09:33 AM

* Front-month contract depressed due to expiry -traders

* Technicals show crude headed for $76.02

* Coming Up: U.S. API weekly oil stocks; 2030 GMT

(Updates prices, detail)

By Christopher Johnson

LONDON, Sept 21 (Reuters) - Oil fell to around $74 a barrel on Tuesday on concerns over the outlook for the global economy ahead of a key Federal Reserve meeting on U.S. monetary policy.

The U.S. central bank is expected to restate its existing policy with no fresh stimulus and interest rates kept at almost zero but is coming under increasing pressure to inject more money into its sluggish economy.

U.S. crude for October fell 96 cents to $73.90 per barrel by 1330 GMT, a much sharper fall than contracts further out, ahead of its expiry later on Tuesday. The November U.S. crude contract was up 35 cents at $75.84.

U.S. crude, also known as West Texas Intermediate or WTI, is coming under pressure in the prompt position due to very high stocks and the expiry of the front futures month, analysts say.

"Given the WTI contract rollover, the price of oil should 'rise' tomorrow for a short period, as the November contract is currently trading $1.50 higher than the expiring October contract," said Carsten Fritsch, analyst at Commerzbank.

David Wech, head of energy studies at JBC Energy in Vienna said oil could get a boost from the Federal Reserve meeting.

"Market sentiment seems surprisingly positive given the recent stream of not-so-encouraging economic news," he said.

"Given the baseline expectations for today's Fed decision ... any potential (but unlikely) surprises are likely to provide an upside to oil prices."

Stock markets were generally stronger on Tuesday with Japan's Nikkei average hitting a seven-week intraday high after the S&P 500 hit a four-month high on Monday. European stocks were also a higher.

ICE Brent for November was much more buoyant than U.S. crude, rising 30 cents to $79.62 per barrel, supported by healthy physical demand for oil in Europe and relatively tight supplies of crude from the North Sea.

November Brent traded more than $3.50 above the equivalent contract for WTI. The premium shrank below $2 after a leak forced the closure of the biggest Canada-U.S. crude pipeline but widened out after flows resumed.

CHINESE DATA

Chinese figures offered some support for prices on Tuesday.

China's apparent oil demand rose 8.2 percent in August over a year earlier, rebounding from July when refineries scaled back crude purchases and throughput from June peaks, Reuters calculations from official data showed.

But the U.S. economy is sluggish, industry figures suggest. U.S. home-builder sentiment was stuck at a one-and-a-half-year low in September, another sign the sector is in for a long and slow recovery.

Industry group the American Petroleum Institute will publish U.S. oil inventory data for the week to Sept. 17 at 2030 GMT on Tuesday. The U.S. Energy Information Administration will release its oil data on Wednesday at 1430 GMT.

Crude inventories probably fell by 1.9 million barrels last week due to lower imports from Canada because of the Enbridge pipeline outage and as tankers navigated around stormy weather, a Reuters survey of analysts showed on Monday.

Ministers of the Organization of the Petroleum Exporting Countries meet next month and are likely to keep oil production targets unchanged since prices have been relatively steady within $70 and $80 per barrel this year.

OPEC ministers and economists in oil consuming countries have said over the last year that this $70-$80 range is ideal for oil because it is high enough to encourage new investment in production but not high enough to choke off demand.

"OPEC have no motivation to change policy," said Wech. "They have a history of not doing anything unless they have to and we can't see anything driving a change at this point." (Additional reporting by Alejandro Barbajosa in Singapore; editing by James Jukwey)

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