Oil prices fell below $69 a barrel Wednesday, but were up from earlier lows, as investors continued to focus on the value of the U.S. dollar, which typically trades inversely to commodities, and awaited a policy statement from the Federal Reserve.
By mid-afternoon in Europe, benchmark crude for August delivery was down 25 cents to $68.99 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, it fell to $68.06 before recovering. On Tuesday, it rose $1.74 to settle at $69.24.
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Oil came off an eight-month high near $73 a barrel earlier this month, and has hovered in the upper $60s this week, as investors eye the dollar and buy crude as protection against possible inflation down the road.
"Crude is following the dollar," said Jonathan Kornafel, Asia director for market-maker Hudson Capital Energy in Singapore. "Right now, crude is largely being bought as an inflation hedge."
The euro was slightly lower at $1.4068 from $1.4083 late Tuesday in New York, while the British pound rose to $1.6583 from $1.6454 in the previous session. On Tuesday, the dollar slumped 2.37 cents against the euro.
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The Energy Department's Energy Information Administration is due to release its weekly petroleum inventory data, but analysts said that with the dollar steering oil prices, the stock figures could be overridden by news from the U.S. Federal Reserve meeting.
