Oil rises above $115 ahead of Fed meeting

Oil rose above $115 a barrel on Tuesday, lifted by expectations the U.S. Federal Reserve would unveil further steps to stimulate its economy this week.

Some analysts believe the central bank will launch a third round of bond-buying due to recent weak economic data from the United States such as disappointing jobs numbers on Friday.

Additional stimulus would likely weaken the dollar, boosting the price of dollar-denominated commodities like oil.

Lingering geopolitical worries also helped put a floor under prices on Tuesday.

Israeli Prime Minister Benjamin Netanyahu said his country and the United States were in talks on setting a "clear red line" for Iran's nuclear programme, but the two allies remained at odds over whether to spell out a clear threshold for military action against Tehran.

Brent crude was trading 23 cents higher at $115.04 a barrel by 0847 GMT, after settling up 56 cents on Monday. U.S. crude was up 2 cents at $96.56.

"Prices have barely moved, suggesting the market is in waiting mode (ahead of the Fed gathering)," said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investment.

"(Fed Chairman Ben) Bernanke has clearly said that the employment situation (in the U.S.) is not good, so there's a chance (of quantitative easing)."

New Direction?

French bank Societe Generale said in a note that it expected base and precious metals prices to outperform oil and grain prices over the rest of the year, with scope for Brent to back down towards $100 over the coming months.

Maintenance in the North Sea, where Brent crude is produced, has cut output this month and lent support to oil prices in the near term, along with the disruptions to U.S. Gulf of Mexico production after Hurricane Isaac.

Saudi Oil Minister Ali al-Naimi said on Monday the Kingdom was concerned about climbing oil prices, with Brent rising by more than 25 percent since late June.

OPEC price hawk Iran, which needs high oil prices to compensate for lower sales volumes under Western sanctions, says oil prices are too low.

U.S. crude oil and fuel inventories likely dropped last week, according to a Reuters survey of analysts on Monday, with imports and production having only just begun to recover after the interruption from Isaac.

Market participants were also waiting for weekly petroleum data issued by the American Petroleum Institute at 4:30 p.m. EDT (2030 GMT) and OPEC's monthly report due at some point on Tuesday.