Oil nears 11-year low on big U.S. supply build; Fed awaited

By Barani Krishnan

NEW YORK (Reuters) - Oil fell on Wednesday, snapping a two-day rebound and heading back toward 11-year lows after U.S. government data showed a huge build in crude inventories, surprising market players who had expected a draw.

Expectations of a U.S. interest rate hike from the Federal Reserve later in the day also weighed on sentiment in oil and other dollar-denominated commodities. Higher U.S. rates should support a strong dollar, making oil costlier for holders of the euro and other currencies.

Data from the U.S. Energy Information Administration showed a growing glut, with crude inventories up 4.8 million barrels last week. Analysts in a Reuters poll had forecast a decrease of 1.4 million barrels.

"Only the staunchest contrarian could derive anything bullish out of that report," said Peter Donovan, broker at Liquidity Energy in New York.

"The actual numbers were more bearish than all expectations, as well as more bearish than the API report released last night," he said.

In a preliminary report on Tuesday, industry group American Petroleum Institute (API), had reported a more modest weekly build in U.S. crude stockpiles of 2.3 million barrels.

Brent, the global benchmark for crude, was down $1.25, or 3 percent, at $37.20 a barrel by 11:47 a.m. EST (1647 GMT). It fell as low as $37.11, which was less than $1 away from its 2004 lows.

U.S. crude's West Texas Intermediate (WTI) futures were down $1.60, or 4 percent, at $35.75 a barrel. WTI's session low was $35.67. Its financial crisis bottom in 2008 was $32.40.

The U.S. central bank's Federal Open Market Committee (FOMC) is scheduled to make an announcement at 2:00 p.m. EST (1900 GMT), delivering its first rate hike in almost a decade.

"With the FOMC expected to raise rates, and the dollar seen rising in the foreseeable future, energy prices will likely stay under pressure," said Chris Jarvis, analyst at energy consultancy Caprock Risk Management in Frederick, Maryland. "A lot to chew on today."

The dollar was flat against a basket of currencies, awaiting the Fed statement, after hitting a one-week high earlier.

(Additional reporting by Simon Falush in London; Editing by Dale Hudson, Keith Weir and David Gregorio)