Crude prices dip after recent gains as Fed decision looms

By Aaron Sheldrick

TOKYO (Reuters) - Crude oil fell in Asian trade on Wednesday, snapping gains that pulled prices back from testing 11-year lows, as investors awaited the outcome of a Federal Reserve meeting, where interest rates are likely to be raised.

West Texas Intermediate fell 24 cents to $37.11 a barrel by 0610 GMT after rising more than $1 on Tuesday. It fell to $34.53 on Monday, the lowest since the financial crisis bottom of $32.40, before ending the day higher.

Brent was down 19 cents at $38.26. The contract settled up 53 cents at $38.45 a barrel on Tuesday, closing higher for the first in eight days.

On Monday, the global oil benchmark came within 14 cents of a December 2008 bottom of $36.20, unleashing a surge of buying.

The drop in prices is not surprising after the rally the previous session as the market girds itself for the decision on rates and official figures on inventory levels in the U.S., said Michael McCarthy, chief market strategist at CMC Markets in Sydney.

"There haven't been any great shifts in the fundamentals and clearly ahead of, not only the Fed rate decision, but the inventory read that we will receive, it wouldn't surprise me if we maintain a holding pattern until then," he said.

The Federal Reserve on Tuesday started a two-day meeting where it is expected to raise rates eight years after a devastating recession opened an era of loose U.S. monetary policy.

A rise in rates is typically negative for oil prices because a hike is likely to prop up the greenback, making crude contracts more expensive as they are denominated in dollars.

Markets are already prepared for a 25 basis point increase but will be closely watching the Fed's policy statement for indications of where rates will go next year.

"If we see a sell-the-fact reaction, which a lot of strategists are now looking for, we could see some pressure on the oil price easing in the overnight session," McCarthy said.

In a further sign of oversupply in the market, data released late on Tuesday by the industry group, American Petroleum Institute, showed a surprise build of 2.3 million barrels in U.S. crude stockpiles last week.

A Reuters poll of analysts had forecast a 1.4 million-barrel draw instead. Official inventory data is due on Wednesday from the U.S. Energy Information Administration.

(Editing by Ed Davies and Subhranshu Sahu)