(Reuters) - Oil fell on Wednesday, pressured by anxiety about the global economy after the Federal Reserve warned that turmoil in Europe threatened the U.S. economy, but failed to take any new steps to stimulate growth.
Market participants were awaiting the outcome of a meeting of oil cartel OPEC, which is expected to reset a production limit for the first time in three years and settle an argument over output levels in Saudi Arabia's favor.
Brent crude fell 70 cents to $108.80 a barrel by 1109 GMT. U.S. crude slipped 56 cents to $99.58. Both contracts gained sharply on Tuesday.
Some investors had speculated that the Fed might show more urgency about moving ahead with new measures to help the economy, and disappointment that it did not pushed demand-sensitive assets like oil lower.
"There's a softer tone because of disappointment that the Fed didn't do anything, but they were never going to," said Michael Hewson, analyst at CMC Markets.
"The Fed are keeping their powder dry in case things in Europe get worse, because they will."
Reinforcing the difficulties facing some euro zone governments to raise funds Italy sold 3 billion euros of five-year government bonds on Wednesday at a yield of 6.47 percent, up from 6.29 percent at the previous comparable auction.
OPEC FOCUS
Investors were watching statements coming out of the Organization of the Petroleum Exporting Countries meeting in Vienna to gauge supply outlook.
The expected agreement would put a 30-million barrel-a-day cap on output for all 12 OPEC members for the first half of the year, keeping production near three-year highs.
However some analysts think that a target around this level will do little to prevent a spike in oil prices next year.
"While a recession and slow oil demand growth scenario might ease the burden on OPEC next year, a repeat of this year's supply outages and disappointments amid stronger demand growth is likely to lead to a real supply squeeze and record high oil prices," said Vienna based analysts JBC Energy in a client note.
The return of Libyan production is a factor that OPEC, and market participants will have to take into account when assessing their future shares of the market.
Tensions remain high between Iran and western powers over the Islamic Republic's nuclear program, a factor which is supporting oil prices on fear of supply disruption.
Iran will move its uranium enrichment plants to safer sites if conditions make this necessary, the semi-official Mehr news agency on Wednesday quoted a senior Revolutionary Guards commander as saying.
Saudi Arabia will not seek to replace Iranian oil in the case of oil sanctions against Iran, Iranian Oil Minister Rostam Qasemi said on Wednesday.
Oil was also under pressure from an industry report that showed crude stocks in the world's largest consumer, the United States, rose 462,000 barrels in the week to December 9, compared with analysts' expectations for a fall of 2 million barrels.
Distillate stocks rose 1.2 million barrels versus a forecast for an 800,000-barrel gain.
Investors will now watch data from the U.S. Energy Information Administration due at 1530 GMT.
Commercial crude stockpiles are expected to have fallen last week due to lower imports and end of the year destocking, an expanded Reuters poll of analysts showed on Tuesday.
(Additional reporting by Manash Goswami in Singapore; editing by Keiron Henderson)
