Oil closed lower in choppy trading ahead of a Federal Reserve policy meeting and as investors assessed the likelihood of OPEC+ succumbing to pressure to add more crude to the market. 

Futures in New York slipped 0.2 per cent on Tuesday. The dollar strengthened, reducing the appeal of commodities priced in the currency, amid speculation that the Fed will start pulling back support for the U.S. economy by scaling their asset-purchase program. 

Meanwhile, the Organization of Petroleum Exporting Countries and its allies will meet later this week to set output policy. Nations including Kuwait have said there’s no need to add barrels more quickly, despite pressure from the U.S. and Japan to do so. 

“OPEC is coming under more political pressure from importing countries to boost supply because oil prices are at the highest level in seven years,” said Pavel Molchanov, an analyst at Raymond James & Associates Inc. “Balancing the question mark about demand with political pressure on the other end of the spectrum -- it seems like maintaining status quo is the most logical approach for OPEC to take right now.”

The industry-funded American Petroleum Institute reported on Tuesday that U.S. crude supplies rose 3.59 million barrels last week, according to people familiar with the data. The data also showed stockpiles in Cushing, Oklahoma, the biggest storage hub in the U.S., declined by about 882,000 barrels. The U.S. government will release its weekly inventory tally on Wednesday.

Oil prices hit a seven-year high in October and demand is now back above 100 million barrels a day, a level last seen before the COVID-19 pandemic, according to BP Plc. The last time consumption was this high, U.S. shale drillers were pumping flat out and OPEC and its allies were holding only a modest amount of production capacity in reserve. 

At a Nov. 4 meeting, OPEC and its allies are expected to stick with plans for only a modest increase in oil supplies. The group will probably ratify the scheduled December hike of 400,000 barrels a day, continuing their gradual revival of output halted during the pandemic, according to all 21 respondents in a Bloomberg survey. 

However, U.S. President Joe Biden has led calls from major economies for the group to open its taps more quickly. On Tuesday, Japan called on the alliance to hold discussions to stabilize the market as a global energy crisis elevates. 

Prices:

• West Texas Intermediate crude for December delivery traded at US$83.14 a barrel at 4:49 p.m. in New York after settling at US$83.91 a barrel
• Brent for January settlement rose 1 cent to settle at US$84.72 a barrel

Elsewhere, the Federal Open Market Committee meets for two days starting Tuesday and will issue a policy statement at 2 p.m. in Washington Wednesday. Federal Reserve policy makers are expected to announce this week that they will start scaling back their monetary stimulus amid greater concern over inflation, economists surveyed by Bloomberg said.

The nervousness in the markets due to the central bank removing additional stimulus is leading investors to risk aversion and a stronger dollar, said Ed Moya, senior market analyst at Oanda Corp. 

Related coverage:

• BP Plc said it would buy back an additional US$1.25 billion of shares, using the proceeds of surging energy prices to woo investors who have become disenchanted with oil and gas.
• China is keeping the same import quota for private oil refiners next year, even after the sector faced government scrutiny for suspected violations of environmental and tax laws.
• The oil market is jumping at the shadow of the crunch in natural gas supplies, but isn’t suffering a shortage of its own, according to Wood Mackenzie Ltd.
• Russia’s oil output increased in October for a second straight month as companies open the taps under the OPEC+ agreement to raise output.