Oil falls on U.S. supply build, expected U.S. 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 where interest rates are likely to be raised, boosting the dollar and pressuring commodities.

Brent was down 86 cents at $37.59 as of 0919 GMT. On Tuesday the contract closed up 53 cents at $38.45 a barrel in its first gain in eight days.

West Texas Intermediate crude futures fell 60 cents to $36.75 a barrel after rising more than $1 on Tuesday.

The overwhelmingly bearish sentiment that has pushed oil from above $115 per barrel last June 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. Energy Information Administration is due on Wednesday.

Investors are also positioned for a rise in interest rates which would support the dollar. This makes oil, which is priced in dollars, 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.

However, van Cleef said that a rate hike is fully priced in to the market, and once the decision is announced, there is a good chance that prices will recover.

"Negative sentiment is justified, but I think the negative feeling is overshooting somewhat."

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.

In the latest Reuters poll of over 90 economists, taken Dec. 4-9, the probability that the Fed will raise rates from near zero rose to 90 percent from 70 percent.

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

(Additional reporting by Aaron Sheldrick in Tokyo; editing by Jason Neely)