Crude oil bubbled higher, ahead of OPEC's Wednesday meeting, but its members are unlikely to take any action to change production.
Reports that Iran may block the Straits of Hormuz in a military exercise, and unfounded rumors that it actually did shut the important waterway, helped send oil higher Tuesday.
"There were a lot of rumors swirling around that had nothing to do with OPEC," said Addison Armstrong of Tradition Energy. "There were rumors the Fed would make an easing announcement. There's rumors that China is going to be making a big easing announcement tonight. If you have interesting things going on with Iran and China's buying oil, that's still enough to keep the prices high."
Addison said Iran is unlikely to block the Straits of Hormuz despite the reported threat because it is reliant on it for delivery of refined products into Iran. About a third of sea-borne crude travels through the Straits.
The OPEC meeting is one of the bigger events for markets on Wednesday, and traders will also be watching Europe as the euro continues to weakenon disappointment about the response to the sovereign debt crisis.
The last OPEC meeting six months ago ended with an acrimonious split between Saudi Arabia and producers like Venezuela and Iran. Saudi Arabia's oil minister left the meeting saying the kingdom would produce more oil to make up for the loss of Libyan production, despite the objections of other members.
"They're more in the mood for compromise after the last time around. They don't want another failed meeting," said Bhushan Bahree, IHS CERA senior director.
OPEC is likely to return to an output ceiling but is not expected to set quotas at its meeting Wednesday, he said.
"The best indication is that they will set a ceiling of around 30 million barrels a day for the first half of the year. OPEC demand for the whole year (2012) was estimated by them to be slightly over 30 million and then they will revisit it when they meet again in June, " said Bahree.
NYMEX crudeTuesday rose 2.4 percent to $100.14 a barrel, and Brent crude, a benchmark for international crude, rose to $109.68 a barrel, up $2.42.
Addison said Iran and Venezuela may agitate for production cuts to drive up the price of oil, but they will not succeed.
"It appears they'd like to keep prices roughly where they are," said Bahree of OPEC.
Besides OPEC, energy markets Wednesday are watching oil inventory data at 10:30 a.m. EST. The federal government Wednesday will also auction 3,900 blocks of oil and gas leases on the outer continental shelf, the first such auction since the BP spill.
The only economic data release is import prices for November, at 8:30 a.m. There is a 1 p.m. auction of 30 year bonds.
The oil complex and agricultural commodities were the winners on the day, as gold fell with the euro. The euro slumped, falling to the 1.30 level after a comment from Chancellor Angela Merkel rattled markets.
Stocks also sank, with the Dow losing 66 to 11,954 and the S&P 500 falling 10 to 1225. There were afternoon rumors that Standard and Poor's was going to cut the ratings of European sovereigns after the closing bell. All three rating agencies have said they are reviewing the sovereign ratings after last week's EU summit failed to deliver a comprehensive solution to the European debt crisis.
But markets were earlier boosted by expectations the Fedwould say something that would indicate a promise of another round of quantitative easing. When that did not materialize in its afternoon statement, stocks gave up gains.
"The markets had visions of QE3 dancing in their heads. That's what all the talk was this morning," said one trader.
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