Oil slips on surprise US inventory build; Fed rate decision eyed

Oil slipped in Asian trade on Wednesday, after two straight days of gains, as an industry report showed US crude inventories rose unexpectedly last week in a sign demand may be weakening.

Brent futures, which have risen more than 3% this week, were down 55 cents, or 0.73%, at $74.77 a barrel at 0755 GMT. US West Texas Intermediate (WTI) crude futures were down 59 cents, or 0.85%, at $69.08.

Data from the American Petroleum Institute on Tuesday showed US crude inventories rose by about 3.3 million barrels in the week ended March 17, sources said.

That defied expectations for a drawdown of about 1.6 million barrels from eight analysts polled by Reuters.

Traders and analysts will be looking out for data from the US Energy Information Administration on Wednesday to see whether it confirms signs of weaker crude demand.

"However, key for markets today will be the FOMC meeting amid continued uncertainty over whether the Fed will hold rates or hike by 25bp," analysts at ING Bank said in a client note.

Markets are awaiting the outcome of what is widely seen as the most challenging Fed policy decision in recent times.

Following the meeting, Chair Jerome Powell is expected to unveil new economic projections and the central bank's path for interest rate hikes.

Despite market expectations for a 25 basis points rate increase, some top central bank watchers say the Fed could well pause further rate hikes or delay releasing new economic projections due to ructions in the global banking sector.

A pause in rate hikes would help stoke economic activity and in turn boost fuel demand.

Oil prices posted their biggest declines in months last week, after high-profile US bank failures beginning March 10 and a crisis at Europe's Credit Suisse. An emergency rescue of Credit Suisse over the weekend helped revive oil prices.

OPEC+ officials, hedge fund managers and oil market participants have called the recent decline in oil prices speculative and insisted that increasing demand will push prices to higher levels in the coming months.

Analysts have also noted that turmoil in the US banking sector could support these fundamentals in the medium term.

"There are concerns that supply may also get hit more than demand amid the banking crisis. US shale output is most at risk from tighter credit conditions from regional US banks," analysts from ANZ Bank said in a note on Wednesday morning.