Oil prices held steady around $71 a barrel on Wednesday, consolidating the previous session's dollar-driven 4.5 percent rally as investors waited for an OPEC meeting to conclude and fresh U.S. inventory data.

The dollar index shed more than 1 percent on Tuesday to hit a one-year low of 77.05, after breaking major chart support. The euro was up around $1.4507, having risen 1 percent on Tuesday to end at $1.4490 in New York, and having touched its highest this year.

This is very much in a dollar-driven, inflation-driven, hysteria-driven market, MF Global commodity and energy analyst Edward Meir said.

Oil looks terrible on the charts. OPEC will likely leave things unchanged and will end the meeting with exhortations to stick to quotas. There is potential weakness, yet we saw the biggest move in a month.

NYMEX crude for October delivery stood at $71.04 a barrel by 0215 GMT, down 6 cents from Tuesday's settlement. London Brent crude fell 18 cents to $69.24 a barrel.

U.S. crude rallied 4.5 percent by Tuesday's settlement from the previous settle on Friday. With prices more-or-less flat and no settlement on Monday due to the Labor day holiday, the gains are the biggest since mid-August.

Crude prices, although up 50 percent so far this year, are still less than half their peak struck in July 2008, a level that OPEC kingpin Saudi Arabia said both producers and consumers are happy with.

The Organization of the Petroleum Exporting Countries (OPEC) is meeting in Vienna on Wednesday, and comments from officials suggest it is likely to keep the official output target stable.

Later on Wednesday, the market will get its first steer on U.S. crude stocks with numbers from the American Petroleum Institute due at 2030 GMT, followed by the Energy Information Administration's on Thursday at 1500 GMT. Both are delayed a day by the Labor Day holiday.

A Reuters preliminary analysts' poll calls for a 1.5 million barrel drawdown in crude stocks, a 700,000 barrel increase in distillate supplies and a 1.4 million barrel decline in gasoline inventories.

With the driving season over and the heating season yet to begin, traders will be watching to see whether demand in the world's top energy user reflects hopes for economic recovery.

Valero, the biggest refiner in the U.S., has decided that fundamentals are grim enough to sack hundreds of workers and idle several major processing units. [nN08294602]

That looks pretty bearish but its not a fundamentally driven market. It's about inflation, the dollar and macro numbers, a trader in Singapore.

Traders will keep half an eye out on Tropical Storm Fred as it grows toward hurricane force in the eastern Atlantic, but its path should keep it clear of land for the next several days and it should skip U.S. Gulf oil and gas installations entirely.

(Editing by Michael Urquhart)

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