Crude oil traded sideways at around $125 a barrel on Tuesday after positive consumer spending data stoked a dollar rally and reduced the likelihood of further monetary stimulus from the central bank, which meets later in the day.
Brent crude was down 4 cents at $125.30 by 1346 GMT, giving up earlier gains after a 1.1 percent rise in U.S. retail sales for February reinforced the view the economy was on the right track. U.S. April crude fell 39 cents to $105.95.
Retail sales for February recorded their largest gain in five months, leading to some profit-taking in oil futures as the chances of a third round of quantitative easing from the Federal Reserve dwindled.
It's a continuation of the recovery trend in the U.S., said Christopher Bellew, a trader at Jefferies Bache in London.
The market had been keen to see whether high oil prices were hitting the pocket of the U.S. consumer, but Americans snapped up motor vehicles and bought a range of other goods even as they paid more for gasoline.
The dollar was boosted by the news, up 0.46 percent against a basket of currencies .DXY at 1324 GMT. A stronger dollar weighs on commodities priced in dollars as it makes them more expensive for buyers holding other currencies.
The dollar bouncing back up, because the Fed is expected to acknowledge things have improved, is helping limit crude prices despite the boost in retail sales, said Phil Flynn, analyst at PFGBest Research in Chicago.
A U.S. Federal Reserve meeting tonight will be closely watched, but QE3 is now thought likely to be on the back burner.
The oil market is going sideways, said Bellew. We will probably see some builds in U.S. crude stocks tonight but prices are holding up because of the continued uncertainty around Iran, Syria and the Sudan.
A Reuters poll of analysts sees U.S. commercial crude stocks up 2.2 million barrels in the week to March 9.
Industry group American Petroleum Institute will release its weekly report on Tuesday at 2030 GMT while the Energy Information Administration data will follow on Wednesday.
Oil prices remain at elevated levels, supported by geopolitical tensions with Iran and an agreement on the Greek bail-out package, as well as the improving economic picture in the United States.
From a psychological point of view, all these factors are very supportive for the market and the demand outlook, said Andy Sommer, energy market analyst at EGL.
However, he does not see much upside for Brent from these levels: Underlying oil demand, especially in the U.S., is still relatively weak. It also looks like the strong Chinese imports are going more into inventories, not actual consumption.
On the supply side, Libyan volumes are coming back into the market along with incremental Iraqi volumes, he said. So we see a cap at the front end of the curve. All this keeps Brent trading in a relatively narrow range.
Escalating tensions between the West and Iran over Tehran's nuclear program and supply disruption from Syria, South Sudan and Yemen have underpinned oil prices this year.
A special U.N. Security Council meeting on the Arab Spring uprisings on Monday showed the five permanent members were no closer to breaking their impasse over Syria, with Russia and China continuing to back a defiant Assad.