Traders' hopes for a crude production cut were dashed by comments from Saudi Oil Minister Ali al-Naimi on Tuesday, although he said producers will hopefully meet in March to negotiate an output freeze.
U.S. oil futures settled lower, at $31.87 a barrel, down 4.5 percent Tuesday. WTI extended losses after the settle following news that domestic crude stockpiles grew by more than twice expectations, according to American Petroleum Institute data cited by Reuters.
Weekly crude oil inventories from the U.S. Energy Information Administration are due at 10:30 a.m. ET Wednesday and will likely add to volatility in the commodity.
The energy sector declined more than 3 percent Tuesday to drag the down 1.25 percent, or 24 points, to 1,921, holding above the psychologically key 1,900 level but failing to break the 1,950 resistance level the index came close to touching Monday.
The Dow Jones industrial average lost 1.1 percent, or nearly 190 points, to close at 16,431, while the Nasdaq composite ended about 1.5 percent lower at 4,503. A miss on February's consumer confidence index also was a hindrance to stocks Tuesday, as recent market volatility weighed on sentiment.
However, sharp market moves will likely not affect changes in Fed policy as much for now.
"The Fed's got much much much much more tolerance for financial market volatility than you or I do and the Fed's going to try to look through this," John Canally, chief economic strategist at LPL Financial, said, noting a disconnect between the central bank's outlook for rate hikes and market expectations.
"What the Fed needs to see is all this volatility is impairing economic activity," he said. "Just because there's volatility doesn't mean the Fed's going to take down the dot plot. I think Fed Chair Janet Yellen has to do a better job explaining that."
Wednesday brings three Fed speakers, all discussing the relationship between monetary policy and the economy.
Richmond Fed President Jeffrey Lacker is scheduled for 8 a.m. ET , while Dallas Fed President Rob Kaplan is expected at 1:15 p.m.
After the close, St. Louis Fed President James Bullard is scheduled to give remarks at 7 p.m.
"It's more about how cohesive is the message," said Art Hogan, chief market strategist at Wunderlich Securities.
Bullard "seems to be pivoting a bit" from a more hawkish stance and "has the ability to be the biggest of the surprises," Hogan said.
In economic news Wednesday, the February flash services PMI is due at 9:45 a.m. ET, while January new home sales are scheduled for release at 10 a.m. Analysts expect the data to show new home sales are continuing at a solid pace, although slightly below the previous month.
"We don't have a concern about the U.S. consumer. We think it's one of the bright spots. The big question is if you continue to see volatility in the markets," Brian Yarbrough, consumer discretionary analyst at Edward Jones.
He's watching for the impact of the strong U.S. dollar on stocks such as Target, which Edward Jones has a "buy" rating on.