08/20/2013 06:38 EDT | Updated 10/20/2013 05:12 EDT

Oil falls 2% as traders await policy signals from Fed, government report on supplies

NEW YORK, N.Y. - The price of oil fell two per cent Tuesday, the sharpest decline in two months, as traders waited for the U.S. central bank to signal when it will shift its monetary policy.

West Texas Intermediate crude for September delivery fell $2.14 to US$104.96 a barrel on the New York Mercantile Exchange. Analysts said some of the decline was driven by the expiration of the September contract at the end of trading. The October contract fell $1.75 to US$105.11 a barrel.

Brent North Sea crude, which is used to price imported oil used by many U.S. refineries, rose 25 cents to US$110.15 a barrel on the ICE Futures exchange in London. Upheaval in Egypt, which controls the Suez Canal, and lower oil production in Libya are supporting the price of Brent.

Evidence that the U.S. economy is improving has led to speculation that the Fed will begin to reduce its $85 billion a month in asset purchases as early as September.

The Fed's stimulus policy has lowered interest rates and made oil and other commodities a more attractive investment by offering potentially higher returns. A "tapering" or phasing down of the program could push down oil prices.

Traders were awaiting the release Wednesday of minutes from the Fed's July policy meeting for hints of whether and when the bank might begin cutting back on its bond buying.

Investors will also be monitoring fresh information on U.S. stockpiles of crude and refined products. A report on U.S. stockpiles will be released Wednesday by the Energy Department's Energy Information Administration, the market benchmark.

Crude stockpiles have declined in seven of the past eight weeks.

In other energy futures trading on Nymex, heating oil rose one cent to US$3.08 a U.S. gallon (3.79 litres), wholesale gasoline lost one cent to US$2.93 a gallon and natural gas fell two cents to US$3.44 per 1,000 cubic feet.