(Reuters) - Brent crude steadied above $97 on Wednesday ahead of a meeting of the producer group OPEC this week, while gains were capped as an uncertainty over Europe's ability to tackle its debt crisis intensified fears of a slowdown in oil demand growth.
Investors are watching for any change in the group's output policy, with price hawks calling on Saudi Arabia to rein in excess production. They are also awaiting Greek election results for a sense of the steps policymakers may take to tackle Europe's deepening debt crisis.
Brent crude gained 3 cents to $97.17 a barrel by 0624 GMT. It had slipped to as much as $96.67 earlier in the session. U.S. crude fell 41 cents to $82.91, reversing the gains of the previous session.
We will see investors stepping aside or repositioning ahead of these key events, said Natalie Robertson, an analyst with ANZ. There is the risk of getting caught on the downside. There is going to be volatility.
Brent may trade between $96 and $102 per barrel with the U.S. benchmark in an $80-$86 range over the next few days, Robertson said. The band is wide because of the uncertainty and a lot of expected volatility, she said.
Uncertainty was reflected across broader markets. Asian shares trimmed earlier gains in choppy trade, base metals traded in a narrow range and the euro edged lower.
OPEC and the U.S. government agreed on Tuesday that global oil markets could weaken further in the second half of the year, with prospects for demand dimming.
In its monthly report on market fundamentals, the U.S. Energy Information Administration, or EIA, cut its forecast for oil demand growth this year by 150,000 barrels per day to 810,000 bpd as the European crisis weighs on demand. The International Energy Agency (IEA) is due to issue its report later in the day.
Given the deepening euro zone crisis, an ongoing US data disappointment cycle and slowing Chinese growth, it appears increasingly likely that the IEA will revise lower its global oil demand estimates, Deutsche Bank said in a report.
Brent has fallen from a peak of more than $128 a barrel in March, prompting calls from exporters such as Venezuela to stem a slide that has knocked $30 a barrel off prices.
Saudi Arabia has lifted output to 10 million barrels a day, its highest in decades, to help nurse global economic growth in what Saudi Oil Minister Ali al-Naimi has called a type of stimulus for the economy.
That has taken supply from the Organization of the Petroleum Exporting Countries to 31.6 million barrels a day in May, an OPEC report said on Tuesday, well above the official 30-million bpd target it set in December.
The Greek elections over the weekend, which may determine whether the country stays in the euro zone, are weighing on crude prices as further chaos in the single currency region may affect global demand for oil.
Raising the stakes further, Austria's finance minister said Italy might need a financial rescue because of its high borrowing costs. While the comment drew a sharp denial from the Italian prime minister, it stoked fears that Europe is far from ending 2-1/2 years of turmoil.
Any significant moves to the upside will likely be reserved until after the Greek elections, with demand concerns still clearly trumping any supply concerns in the interim, said Tim Waterer, a senior trader at CMC Markets, in a report.
Data on crude stockpiles in the world's top oil consumer, the United States, will also provide fresh price direction.
U.S. crude stocks climbed unexpectedly last week thanks to a large increase on the West Coast, although stockpiles in the key Cushing storage hub declined, data from the American Petroleum Institute (API) showed on Wednesday.
Crude inventories rose by 1.6 million barrels, contrary to analysts' expectations in a Reuters poll for a draw of 1.4 million. The EIA numbers are due later in the day.
Market participants will be watching just to see if the trend of a fall in stockpiles continues, Robertson said.
(Editing by Himani Sarkar)