Brent crude hovered at $114 a barrel Wednesday, after posting six days of gains, on expectations the United States will act again to try and boost growth and increase demand for oil.
Investors also eyed storm developments for potential supply disruption in the United States and a pickup in seasonal fourth quarter demand even as a larger-than-expected rise in crude inventories depressed U.S. oil futures.
Brent is poised for the steepest monthly loss since June, while U.S. crude is headed for the biggest dip since May as fears another recession in the United States and a debt crisis in the euro zone could cut fuel demand sparked a sell-off.
Brent crude was down 9 cents at $113.93 by 0318 GMT (12:18 a.m. ET), after settling at a four-week high of $114.02 a barrel. U.S. crude fell 31 cents to $88.59 a barrel, snapping four days of gains.
Investors are already looking at fourth-quarter demand, which doesn't look so bad from a seasonal standpoint, said Tony Nunan, a risk manager at Mitsubishi Corp. If we can get beyond the fear of a second recession, the oil market still stands a chance for upside.
Minutes from an August Fed meeting showed it was considering a range of actions to help the struggling economy, including the unprecedented step of tying the interest rate policy outlook to a specific unemployment level. Some market observers were also expecting that the Fed could introduce a third round of bond buying, or quantitative easing.
There's no way that the Fed could have another round of quantitative easing, but the financial community seems to have a strong expectation, Nunan said.
Federal Reserve Chairman Ben Bernanke, by delaying the September meeting, could be leaving the door open to assess more data on housing and unemployment, he added.
Others such as Jonathan Barratt, managing director of Commodity Broking Services in Sydney, said it was still not clear if there would be another round of easing measures.
I am of the opinion that they will do nothing, he said. The United States could suffer in terms of growth but it will not be a detrimental issue.
Technical charts showed that Brent and U.S. crude are heading for further gains, Reuters market analyst Wang Tao said.
An industry report showed a higher than expected rise in U.S. crude inventories last week as imports rose and refinery utilization dropped, while gasoline saw a big draw.
Crude stockpiles rose 5.1 million barrels for the week to August 26, data from the American Petroleum Institute showed, well over analyst expectations for a 400,000-barrel gain. The government's Energy Information Administration will issue its data at 10:30 a.m. EDT.
Investors were watching the development of Tropical Storm Katia in the Atlantic, which picked up speed and could become a hurricane by Wednesday, the U.S. National Hurricane Center said.
A tropical wave over the northwestern Caribbean Sea has a 10 percent chance of becoming a hurricane in the next 48 hours, and could move into the western Gulf of Mexico, home to a large concentration of oil and natural gas facilities.
In Libya, oil production can restart within weeks and reach full pre-war output within 15 months, the newly appointed chairman of the country's National Oil Corporation (NOC) said.
The resumption of Libyan production was expected to weaken Brent prices, but a force majeure on Nigerian Bonny Light supply and an embargo on Syrian exports has stemmed any slide, Mitsubishi's Nunan said.
The Bonny Light supply disruption has keep U.S. crude's discount against Brent wide at around $25.34.
(Reporting by Florence Tan; Editing by Manash Goswami)