Crude falls more than $1 on uncertainty ahead of Fed meeting

NYMEX crude for June delivery declined as much as $1.13 a barrel to $111.15, and traded at $111.17 a barrel by 0414 GMT. Brent dropped 74 cents to $122.92 a barrel.

We are not comfortable with oil prices where they are today...I am concerned about the impact it could have on the global economy, Khalid al-Falih, Aramco's chief executive, told an industry gathering in Seoul.

Crude snapped three days of gains, sliding along with silver and gold, as investors were uncertain whether the U.S. Federal Reserve would signal a change in its easy monetary policy after a two-day meeting of policymakers wraps up on Wednesday.

There is some risk reduction because the market wants to watch if Bernanke will say anything about a change of stance, Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investments, said. Any change of stance is highly unlikely.

Participants will look to the post-meeting news conference by Fed Chairman Ben Bernanke on Wednesday -- the first regularly scheduled news briefing by a Fed chief in the U.S. central bank's 97-year history -- to see how the Fed plans to exit from its ultra-loose policy.

The market is displaying a cautious stance as any signs of the Fed tightening dollar supply would reduce crude gains, said Serene Lim, an analyst at ANZ.

Saudi Arabia has enough spare crude capacity to meet demand as oil prices extend a gain above $120 per barrel, Falih said, adding that he didn't see any tightness in global oil supply.

They should be happy with the increases, but what Saudi Arabia is looking for is stability in prices, Emori said. Anything outside of a range of $90-$110 makes them uncomfortable.

STOCKPILES, DOLLAR

The slide in NYMEX futures may have been steeper than Brent partly on expectations U.S. crude oil stockpiles were likely to have risen last week, with crude imports heftier than demand from refineries, a preliminary Reuters poll ahead of weekly inventory reports showed on Monday.

The increase follows an unexpected drawdown the week before which was the first decline in domestic crude stocks in seven weeks. The American Petroleum Institute will issue its data later in the day followed by the Energy Information Administration on Wednesday.

The strengthening of the U.S. dollar against the euro also weighed on oil. The euro slipped after European Central Bank Governor Jean-Claude Trichet said he shares the view that a strong dollar is in the interest of United States.

Still, U.S. oil futures have a strong support at $110 a barrel and are unlikely to dip below that level, Emori said. Prices may start to recover after the Fed meet ends as the central bank is expected to stick with its current policy, which will provide a very good trigger, Emori said.

MIDDLE EAST

Oil has strengthened in the past few months as protests in Libya spread to other countries in the Middle East and North Africa such as Syria and Yemen, boosting fears of further supply disruptions from the region at a time when demand from key consumers such as China and India continues to rise.

Security forces have arrested about 500 pro-democracy sympathizers across Syria after the government sent tanks to try to crush protests in the city of Deraa, the Syrian rights organization Sawasiah said on Tuesday.

The independent organization said it had received reports that at least 20 people had been killed in Deraa since tanks moved in on Monday.

Italy, which has been playing a limited role in NATO operations in Libya, decided on Monday its air force would be allowed to bomb selected military targets in the former Italian colony.

Refugees fleeing Libya's Western Mountains told of heavy bombardment by leader Muammar Gaddafi's forces as they try to dislodge rebels in remote Berber towns.

(Editing by Clarence Fernandez)