* Dollar weakness on expected Fed easing supports oil
* Libya says oil could get closer to $100 by end of 2010
* Coming up: API oil inventory data, 4:30 p.m. EDT Tuesday (Recasts, updates prices and market activity; new byline, changes dateline from previous LONDON)
By Robert Gibbons
NEW YORK, Nov 2 (Reuters) - Oil rose on Tuesday as the dollar slipped ahead of an expected decision by the Federal Reserve to inject more money into the economy, and as more members of OPEC signaled a tolerance for higher prices.
The U.S. central bank is expected to announce a second round of quantitative easing totaling around $500 billion of government debt purchases over several months at the end of its two-day policy meeting on Wednesday.
U.S. crude for December delivery
ICE December Brent crude
The dollar weakened broadly and Wall Street rallied, both factors that have helped propel oil and commodity prices higher this year, as investors awaited the expected Federal Reserve attempts to support a faltering recovery and the results of Tuesday's U.S. mid-term elections.
"The dollar is being sold and equities are higher, lifting oil, but there is some caution ahead of the elections and the Fed announcement," said Chris Dillman, analyst at Tradition Energy in Stamford, Connecticut.
Crude spiked in reaction to the top official for OPEC member Libya telling Reuters he thought oil prices would get closer to $100 by year's end. [ID:nWLA6884]
Shokri Ghanem, chairman of Libya's National Oil Corp, said producers' income for dollar-denominated oil had declined while the cost of food and other commodities had risen due to the slump in the dollar, which has declined 1.5 percent against a basket of currencies this year but plunged about 8 percent since September.
The Libyan comments came a day after Saudi Oil Minister Ali al-Naimi said oil prices in a $70-$90 range were comfortable for consumers, signaling a higher acceptable range from the $70-$80 range the kingdom has previously said was comfortable. [ID:nLDE6A10FW]
Qatar's oil minister also said $70-$90 per barrel would be reasonable for consumers and producers. [ID:nSGE6A102C]
The dollar fell against a basket of currencies, the Australian dollar jumped to a 28-year high against the greenback and the euro traded above $1.40, buoyed by a pick up in euro zone manufacturers' output. [USD/]
The weak dollar lifts oil and other dollar-denominated commodities as it lowers the value of currency paid to oil producers and can attract investment seeking better returns than found in other markets.
SELL THE NEWS
Several traders and analysts voiced caution ahead of the
Federal Reserve's move, with some expecting a "sell the news"
reaction in oil markets if the Fed's actions are not as
substantive as expected.
Graphic of returns from a range of assets since the Fed began hinting it would launch a new round of QE:
http://link.reuters.com/kyw48p
Graphic of commodities so far this year:
http://link.reuters.com/kew48n
A "sell the news" reaction to the Fed's policy announcement is "a distinct possibility," Tim Evans, analyst at Citi Futures Perspective in New York, said in a research note.
Later on Tuesday, American Petroleum Institute data is expected to show U.S. crude stockpiles rose for the fourth time in five weeks last week as imports increased. [EIA/S] (Additional reporting by Christopher Johnson in London; Editing by Marguerita Choy)