By Manash Goswami
SINGAPORE (Reuters) - Brent futures held steady above $107 a barrel on Wednesday as investors waited to hear the fate of the U.S. monetary stimulus, with prices supported as concerns of turmoil in emerging economies eased.
Asian markets rallied and most other risk assets improved, supporting oil, after Turkey stunned investors with a huge hike in interest rates, stirring hopes the drastic action would short-circuit a vicious cycle of selling in emerging markets and revive risk appetite.
Brent crude gained 10 cents to $107.41 a barrel by 0501 GMT, after ending 72 cents higher. U.S. oil fell 10 cents to $97.31, after settling at its highest since December 31.
"There is bit of a 'risk-on' mood at the moment across markets, as is evident in equities," said Ric Spooner, chief market analyst at CMC Markets in Sydney.
"In oil, we probably saw some buying overnight as traders took positions ahead of the Fed meet and because we saw some sell-off earlier on."
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Brent has declined 3 percent so far this month, snapping three straight months of gains. Nymex has lost 1.3 percent so far this month, but that follows a steep gain of 6 percent in December, the highest since July.
The price difference between the two contracts held above $10 a barrel after narrowing to as much as $9.77 overnight as gains in Nymex were higher than Brent.
A cold spell, an improvement in risk appetite and expectations of a steady recovery in the U.S. economy may keep Brent trading between a $107 and $109 a barrel range over the next week, Spooner said. The U.S. benchmark may stay in a $97.50-$99 range, he added.
Financial markets are waiting for a meeting of the U.S. Federal Reserve, due to start on Wednesday, where the central bank is widely expected to trim its monetary stimulus by another $10 billion a month.
"Oil markets continue to oscillate between quantitative easing tapering, emerging market concerns, and physical supply/demand," analysts at ANZ bank said in a note.
PRICE OUTLOOK
Investors are also awaiting inventory data from the U.S. Energy Information Administration (EIA), due later in the day, to gauge the country's demand outlook.
Crude inventories rose by 4.7 million barrels in the week to January 24 to 360.4 million, the American Petroleum Institute said, compared with analysts' expectations for an increase of 2.3 million barrels.
Distillate stockpiles, which include diesel and heating oil, fell by 1.8 million barrels, compared with expectations for a 2.2 million-barrel drop, the data showed.
Further support for oil is coming from supply fears from the Middle East. Spillover attacks from the civil war in Syria have hindered development of Iraq's gas and oil reserves and a major pipeline to the Mediterranean has been blown up dozens of times, Iraq's top energy official said.
Yet gains for oil, particularly the U.S. benchmark, may be limited as larger that usual refining capacity is taken down for maintenance this spring, reducing demand.
Refiners on the Gulf Coast, home to about half of the country's capacity, are set to shut an average of 628,000 barrels per day (bpd) of crude distillation capacity in the first quarter and another 243,000 bpd in the second, according to data made available to Reuters. That is more than 100,000 bpd above the five-year average.
(Editing by Muralikumar Anantharaman and Miral Fahmy)