Crude-oil futures prices settled 1.9% lower Tuesday as investors adjusted positions ahead of a scheduled Wednesday statement from the U.S. Federal Reserve's policy-making board.
Prices rallied nearly $2 a barrel over four days last week, and re-summitted at the $90-a-barrel level on expectations that the Fed was preparing to move soon with a fresh stimulus package to jolt the U.S. economy.
On Tuesday, analysts said, players who had staked out new long positions carried through on selling begun Monday, when light, sweet crude oil futures on the New York Mercantile Exchange couldn't hold above $90.
Nymex September-delivery crude oil settled down 1.9%, or $1.72 a barrel, at $88.06 a barrel. The two-day drop more than erased last week's gains, putting crude back to its lowest settlement price since July 13.
Traders said some investors have raised doubts about if the Fed would now launch a new stimulus package, given tentative signs of improvement in the economy of the U.S., the world's largest oil consumer.
U.S. consumer confidence increased to 65.9 in July, up from a revised 62.7 in June, the Conference Board, a private research group, said Tuesday. Economists surveyed by Dow Jones Newswires had expected a reading of 61.4.
"Some of the weaker 'longs' have pulled out," said Gene McGillian, analyst and broker at Tradition Energy, referring to investors who recently placed bets on higher oil prices. "They are starting to double-think whether a large stimulus is coming."
Mr. McGillian said he expects the prices to be "touchy" this week and sensitive to big moves from meetings of the Federal Open Market Committee, the Fed's policy board, which will issue a statement Wednesday at the conclusion of its two-day meeting, and of the European Central Bank.
U.S. non-farm payrolls for July, a critical economic indicator is set for release Friday, while the oil market will focus in the short-term on weekly U.S. inventory data.
Analysts surveyed by Dow Jones Newswires expect data to show U.S. crude oil inventories fell 800,000 barrels from a week earlier, while gasoline stocks rose 500,000 barrels and distillate stocks [heating oil/diesel] rose by 800,000 barrels. The figures are also expected to show refiners trimmed operations relative to capacity by 0.3 percentage point.
The closely watched government survey from the Energy Information Administration for the week ended July 27 is due at 10:30 a.m. EDT on Wednesday. The American Petroleum Institute, an industry group, is scheduled to release its survey at 4:30 p.m. EDT on Tuesday.
"Last week we had some really brutal numbers" in the U.S. inventory data, but the market rallied on rising expectations of a Fed move, said Andy Lebow, a vice president of energy futures at Jeffries Bache.
Mr. Lebow said he expects Nymex crude to hold in a near-term range of $84-$93 a barrel, essentially the boundaries of settlement prices during July. ICE Brent will likely hold in a range of $98-$108 a barrel near term, he said.
Tuesday marked the last trading day for August-delivery contracts for heating oil and reformulated gasoline blendstock futures, capping broad swings in recent weeks.
August heating oil expired down 1.3%, or 3.74 cents, at $2.8417 a gallon, a one-week low. The September-delivery contract settled down 1.2%, or 3.34 cents lower, at $2.848 a gallon.
August RBOB gasoline futures expired 0.8% or 2.22 cents lower, at $2.9146 a gallon. September RBOB settled down 4.41 cents at $2.7743 a gallon.