* Dollar index at 10-week low ahead of Fed meeting
* Brent premium to U.S. crude rises to near $10 a barrel
* Coming up: EIA weekly oil inventories at 2030 GMT
(Changes the word 'drop' to 'rise' in paragraph 8)
By Emma Farge
LONDON, Jan 26 (Reuters) - Oil prices bounced higher on
Wednesday after two days of losses as the dollar fell to 10-week
lows ahead of a U.S. Federal Reserve statement expected to focus
on positive economic prospects for the world's top oil consumer.
The Fed is expected to underscore reasons for optimism even
as it reaffirms its economic stimulus plan to buy $600 billion
in government debt in its 1915 GMT statement. []
Brent crude futures on ICE led the rally, rising by $1.24 to
$96.49 a barrel and lifting its premium to the U.S. crude
benchmark to near $10.
U.S. crude <CLc1> was up 62 cents at $86.81 a barrel by the
same time.
"The market is looking forward to the Fed decision and
there's been a tiny pull-back in the dollar so there's a small
rebound higher," said analyst Andrey Kryuchenkov of VTB Capital.
The dollar fell to 10-week low against a basket of
currencies on Wednesday and helped prod oil prices higher since
it makes commodities cheaper for non-dollar buyers. []
European shares rose on Wednesday in a move that also helped
to lift sentiment on the oil market. []
The rally on crude futures came despite a more-than-expected
2.1 million barrel rise in U.S. crude oil stockpiles last week,
according to the American Petroleum Institute. []
But this bearish news was tempered by a steep 5 million
barrel draw in distillate stocks after prolonged period of
freezing conditions in the U.S. northeast heating hub.
The Energy Information Administration (EIA) is expected to
publish its closely watched data on U.S. oil stocks at 2030 GMT.
[]
$100 OIL?
The two oil benchmarks are now around 3-6 percent below
January peaks when prices touched more than two-year highs and
sent off alarm bells that oil prices would surge through the
$100 a barrel milestone.
The Brent front month rose to within 80 cents of $100 a
barrel on January 14.
Analysts at Credit Agricole CIB and Facts Global Energy said
that the immediate risk of a breach of $100 has now receded with
prices likely to trend lower through the first quarter.
"I think the fall is justified by the disappearance of very
cold weather in Europe and the restart of the Alaskan pipeline
as well as signs that the Organization of Petroleum Exporting
Countries is increasing production," said analyst Christophe
Barret at Credit Agricole.
Freezing conditions in Europe in December have led to draws
in distillate stocks used for heating but temperatures have
since turned milder. []
Worries that inflation could prompt more interest rate hikes
in emerging markets has also dampened expectations for future
demand growth, which the International Energy Agency already
predicts to rise at only about half the pace as last year.
India raised its interest rates for the seventh time in 10
months on Tuesday, saying inflation was likely to continue due
to rising costs for raw materials and food. []
Technical charts show that U.S. crude prices have already
fallen below their 50-day moving average and some analysts
expect it to fall further to $81-$82 a barrel. []
(Additional reporting by Florence Tan in Singapore; Editing
by Alison Birrane)
