* Big western Libya oilfield ramps up production
* Easing tensions over Syria reduce risk premium to oil
* Fed expected to taper stimulus, may hurt oil prices
* Coming up: U.S. Fed statement at 1800 GMT, news conference
at 1830 GMT
By Jessica Jaganathan
SINGAPORE, Sept 18 Brent crude oil prices
slipped towards $108 a barrel on Wednesday as Libya resumed
output and as the start of diplomatic talks to eliminate Syria's
chemical weapons eased worries that crude supply from the Middle
East would be at risk.
But investors remained cautious as they awaited the outcome
of a U.S. Federal Reserve policy meeting, where the central bank
is expected to decide to begin the reduction of its massive,
commodities-friendly stimulus programme.
Brent crude oil futures for November fell 17 cents
to $108.02 a barrel by 0632 GMT, after slipping to its lowest in
more than a month in the previous session.
U.S. crude oil futures for October gained 32 cents to
$105.74 a barrel, after losing $1.17 in the previous session.
"One of the foremost factors (for Brent prices) has been
news that Libya is having some success restoring production
capacity - which follows the momentum on the likelihood of a
diplomatic solution to Syria," said Ric Spooner, chief market
analyst at CMC Markets.
"U.S. prices trending higher is probably just a short-term
fluctuation, and also Libya being able to increase production
has a more direct impact on Brent than on WTI."
A combination of strikes, militias and political activists
have blocked the majority of Libya's oilfields and ports since
Libyan oil supplies are expected to rise to 400,000 to
450,000 barrels per day (bpd) as one of its biggest western
oilfields, El Sharara, ramps up after workers resumed pumping on
Monday. Oil output in Libya is still far below its pre-war level
of 1.6 million bpd.
The geopolitical risk premium built into Brent prices was
also receding as fears of a U.S.-led strike on Syria abated.
Syria is not a major oil producer, but investors had worried any
violence there could spread and disrupt Middle East oil
Diplomats from five key nations kicked off talks on Tuesday
on a Western-drafted U.N. Security Council resolution to
eliminate Syria's chemical weapons.
"The diplomatic resolution to gather and destroy Syria's
arsenal of chemical weapons helped to relieve worries of a U.S.
military response which had plagued the market recently," wrote
Phillip Futures analysts in a note on Wednesday.
U.S. FED POLICY MEETING
Investors were also selling oil as a two-day Fed meeting
began on Tuesday. The central bank is expected to cut its
monthly bond purchases by at least $10 billion.
The U.S. dollar, in which most commodities are priced, was
near a four-week trough against a basket of major currencies.
While the likely outcome of the Fed meeting might already be
priced into oil, a bigger tapering could prompt more selling,
Supporting U.S. oil prices, U.S. crude inventories fell by
252,000 barrels in the week to Sept. 13, compared with analysts'
expectations for a decrease of 1.4 million barrels in a Reuters
poll, data from industry group the American Petroleum Institute
Crude stocks at the Cushing, Oklahoma, delivery hub fell by
889,000 barrels, the API said.
Oil inventory data from the U.S. Energy Information
Administration is due at 10:30 a.m. EDT (1430 GMT) on Wednesday.