LONDON - Oil fell on Wednesday as investors anticipated an increase in production quotas from an OPEC meeting as a response to high prices, which have weighed on global growth and stoked inflation.
U.S. crude fell 64 cents to $98.45 a barrel by 0907 GMT. Brent crude dropped 37 cents to $116.41 a barrel.
Weakness in the dollar provided some support after U.S. Federal Reserve Chairman Ben Bernanke said growth in the world's largest economy had slowed and indicated that further stimulus was unlikely. A weaker dollar reduces the price of oil for holders of other currencies.
Analysts saw further downside scope for crude, however, following a decision from the meeting, which is expected around 1400 GMT.
"They are looking to send a psychological message that they are aware of the problem (of tight supply), and if the meeting has this outcome it could push crude down further," said Christophe Barret, an oil analyst at Credit Agricole Corporate and Investment Bank.
Saudi and its Gulf Arab allies want OPEC at least to close a 1.4 million bpd gap between the producer group's official production target of 24.8 million bpd, unchanged for two and a half years, and actual output, estimated by OPEC in April at 26.2 million bpd.
But they face stiff resistance from other producers in the Organization of the Petroleum Exporting Countries, with Iran, Iraq, Ecuador and Venezuela opposed to raising quotas.
Saudi pressure
Saudi Arabia, the biggest producer in OPEC, wants the cartel to lift formal output limits for the first time since 2007 to show consumer countries that it recognises the danger to the economy from energy inflation.
Riyadh hopes its extra supplies will put an end to oil's sharp rally, driven by strong demand growth and Arab unrest.
Barret said he expects OPEC to increase output quotas by 1-1.5 million barrels at the meeting on Wednesday, then by a further 1.1 barrels in both the third and fourth quarters.
The U.S. government raised its world oil demand forecast for 2011 on expectations Japan and other countries would need more crude to generate electricity, a surprise move that adds pressure on OPEC to boost production.
But there are still worries about mounting debt in the world's largest economy. An idea once confined to the fringes is seeping into the Republican mainstream -- that a brief U.S. default might be an acceptable price to pay if it forces the White House to deal with runaway spending.
U.S. crude stocks slipped 5.5 million barrels in the week ended June 3, data from the American Petroleum Institute showed on Tuesday, far exceeding the average analyst forecast for a drop of 300,000 barrels.
The U.S. Energy Information Administration will issue its weekly inventory data later on Wednesday.
Analysts expected U.S. crude oil inventories to have fallen 300,000 barrels last week, while gasoline stocks climbed 1 million barrels, according to a Reuters poll. — Reuters
