Oil falls on U.S. supply build, expected Fed rate hike

By Simon Falush

LONDON (Reuters) - Oil fell on Wednesday on fresh evidence of growing global oversupply and as investors awaited the outcome of a U.S. Federal Reserve meeting at which interest rates are likely to be raised, boosting the dollar and pressuring commodities.

Brent was down 95 cents at $37.57 a barrel at 1408 GMT. On Tuesday, the contract closed up 53 cents in its first gain in eight days.

Analysts are watching for any test of Brent's December 2008 low of $36.20, with a break below that level taking the benchmark to levels not seen since 2004.

West Texas Intermediate crude futures were down 59 cents at $36.76 per barrel, after rising more than $1 on Tuesday. WTI was supported by looming changes to legislation that are expected to enable exports of U.S. crude oil.

The overwhelmingly bearish sentiment that has pushed Brent from above $115 per barrel in June last year returned to the fore as fresh evidence emerged that low prices are doing nothing to ease heavy oversupply.

Data on Tuesday from industry group the American Petroleum Institute showed a surprise rise of 2.3 million barrels in U.S. crude stockpiles last week.

A Reuters poll of analysts had forecast a fall of 1.4 million barrels.

Inventory data from the U.S. government's Energy Information Administration is due on Wednesday.

Investors are also positioned for a rise in interest rates, which would support the dollar. A stronger dollar makes dollar-priced oil more expensive to holders of other currencies.

"The market sentiment is that this will lead to a higher dollar and push commodity prices lower," said Hans van Cleef, senior energy economist at ABN Amro in Amsterdam.

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.

The Federal Reserve is scheduled to release its decision on Wednesday at 2 p.m. EST (1900 GMT).

On Wednesday, Brent's premium to WTI fell to just 27 cents, its lowest since January, and the North Sea benchmark may drop further relative to U.S. crude this week if the U.S. government repeals its decades-old ban on crude exports.

Scrapping the ban would lead to an abrupt end to a years-long fight triggered by the domestic shale boom and be a win for the U.S. oil industry and Republicans, who had argued the ban was an archaic relic of the Arab oil embargo era.

(Additional reporting by Aaron Sheldrick in Tokyo; Editing by Jason Neely and Dale Hudson)