Oil edges up ahead of inventory data
Traders keep an eye on Nigeria problems and await government report
NEW YORK (CNNMoney.com) -- Oil prices edged higher Tuesday as traders remained wary of potential supply disruptions in Nigeria and held back ahead of an upcoming inventory report.
Light, sweet crude for August delivery settled up 26 cents to $137 a barrel on the New York Mercantile Exchange.
Crude prices rose nearly $2 a barrel earlier in the session. But prices have alternated between slight gains and losses for most of the afternoon.
"The market has stabilized today since there's really no new news," said Matt Piotrowski, an oil industry analyst at research firm Energy Intelligence. "This is very uncommon, we're used to seeing prices vary in a wide range."
Oil prices have been pushed higher recently on concerns that instability in Nigeria will disrupt supply from Africa's largest oil producer. But the situation in Nigeria was less volatile Tuesday and that helped the market stabilize, Piotrowski said.
"The market is waiting for tomorrow's (Wednesday's) inventory report," he added. Analysts are expecting the Energy Information Administration (EIA) to report that crude supplies shrank last week when it releases its inventory report on Wednesday.
Meanwhile, a Senate hearing Tuesday afternoon focused on banning large investors from trading in commodities markets. The hearing was part of a broad push by Congress to address the role of "excessive speculation" in driving fuel prices higher.
Currency exchange: The dollar fell against the euro and the yen Tuesday after economic reports showing a plunge in consumer confidence and a drop in home prices highlighted concerns about the health of the U.S. economy.
The euro was buying $1.55941 U.S. dollars in morning trading, up from $1.5518 a day earlier, while the dollar purchased ¥107.61, down from ¥107.8505.
A weaker dollar often prompts buying by investors who view oil futures as a hedge against inflation. And many overseas investors see a softer greenback as a buying opportunity for oil and other dollar-denominated commodities.
Traders are also awaiting the outcome of the Federal Reserve's two-day policy meeting on interest rates that will conclude Wednesday.
"We in the oil patch will be watching the decision by the Federal Reserve too," said John Kilduff, an energy analyst at MF Global in New York.
The central bank is expected to hold a key short-term interest rate steady at 2%, while the statement is expected to stress that the Fed is staying vigilant on inflation.
"If they raise rates and we get a dollar rebound, that could bring oil prices down," Kilduff said. "If they cut rates that will exacerbate things."
Supply concerns: Oil traders remained focused Tuesday on potential supply disruptions in Nigeria, Africa's largest oil producer, and Iran.
Royal Dutch Shell (RDS.A) disclosed late last week that it cannot meet contractual obligations to export oil from a Nigerian oil field after a militant attack.
Chevron Corp. (CVX, Fortune 500) has been reportedly forced to shut down a Nigerian oil facility also due to a militant attack. Chevron's workers in Nigeria have threatened to strike after talks with the company over staffing levels and security broke down.
Oil prices were also supported by the European Union's approval of new sanctions against Iran, OPEC's second-largest producer, in an attempt to deter development of the country's nuclear program.
The EU sanctions will impose additional financial and travel restrictions on a list of Iranian companies and experts - including Iran's largest bank, the Associated Press reported.
Rumors of an Israeli attack on one of Iran's nuclear facilities, which have been denied by both countries, also helped push oil prices higher early Tuesday morning.
Kilduff called the rumors "spurious." He said that talk of military conflict with Iran has been "underpinning the market to a large degree" and that it is important to "disengage from this rhetoric" to bring oil prices down.
Gas and diesel: Separately, retail gas and diesel prices have fallen for the second consecutive day this week, according to motorist group AAA.
The national average price for a gallon of regular gas fell three-tenths of a cent to $4.069 from $4.072 the previous day.
The national average diesel price fell to $4.770 a gallon from $4.772, the AAA survey showed. 
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