Oil falls back as Europe woes outweigh Fed view

NEW YORK Wed Nov 2, 2011 2:34pm EDT

Traders work in the crude oil and natural gas options pit on the floor of the New York Mercantile Exchange in New York, July 18, 2011. REUTERS/Shannon Stapleton

Traders work in the crude oil and natural gas options pit on the floor of the New York Mercantile Exchange in New York, July 18, 2011.

Credit: Reuters/Shannon Stapleton

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NEW YORK (Reuters) - Crude oil futures fell back on Wednesday as uncertainties about Greece's bailout loan emerged, deepening the euro zone debt crisis and outweighing a U.S. Federal Reserve view of a somewhat brighter economic outlook.

In early trade, hopes that the Fed might signal monetary easing to help boost sluggish economic growth pushed prices up.

However, a downturn in euro zone manufacturing further put the spotlight on the region's festering debt crisis and data showing an increase in U.S. crude stockpiles last week tempered the day's move up in prices.

The dollar trimmed losses against the euro after the Fed's Open Market Committee said in a statement following its two-day meeting that the U.S. economy strengthened somewhat in the third quarter.

That view was interpreted by some as removing the potential for further policy easing, as least for the moment, analysts said.

Crude futures initially held gains after the statement was released as some interpreted risks signals it raised as opening the door for more easing, but many analysts did not see it that way.

"The Fed did not give any indication about QE3, which the market was on the lookout for," said John Kilduff, a partner at hedge fund Again Capital LLC in New York.

"Also, the headlines about the next Greek loan tranche to be held up because of Greece calling the referendum also provided pressure on oil," Kilduff added.

In London, Brent crude for December delivery was down 17 cents at $109.37 a barrel at 2:17 p.m. EDT (1817 GMT), backing down after plowing through its 100-day moving average at $111.19 earlier to hit a session high $111.47.

U.S. December crude on the New York Mercantile Exchange moved choppily, moving down with Brent crude earlier, before tracking higher again. It traded at $92.33, up 14 cents, having climbed early to a session high of $93.79.

Brent's premium against U.S. crude narrowed to around $17, from $17.35 at the close on Tuesday.

"The market was likely looking for more guidance for the potential trigger of QE3 rather than the affirmation of the continuation of operation 'twist', given the downside risks to the U.S. economy that were underlined in the Fed statement, said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas in London.

The U.S. Energy Information Administration said that for the week to October 28, domestic crude inventories rose 1.83 million barrels, larger than the forecast for a 1.1 million barrels in a Reuters poll.

U.S. product inventories were mixed, with distillates, which include heating oil and diesel oil, sharply lower and gasoline showing an increase. Forecasts had called for stocks of both categories to have fallen.

"As always it's a mixed bag, but at first glance it seems bearish, with crude and gasoline up a bit more than expected," said Andy Sommer, an analyst at EGL.

Crude futures were aided in their early rise by data showing that private employers added more jobs than expected last month, with planned layoffs dropping sharply.

The data comes ahead of Friday's more comprehensive government report on October nonfarm payrolls and unemployment.

(Additional reporting by Robert Gibbons in New York; Simon Falush and Ikuko Kurahone in London; Florence Tan in Singapore; Editing by Marguerita Choy)

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