Oil prices steady ahead of U.S. inventory data

By Barani Krishnan

NEW YORK (Reuters) - Oil prices steadied on Wednesday after dipping close to two-month lows on bets U.S. government oil inventory data for last week will show drawdowns closer to market expectations.

Speculation that the U.S. Federal Reserve will keep interest rates unchanged at the conclusion of its policy meeting later in the day also pared early gains in the dollar that had pressured oil.

Both Brent and U.S. West Texas Intermediate (WTI) crude futures fell about 1 percent or more earlier in the session, reacting to a U.S. crude draw of 827,000 barrels for the week to July 22 reported by trade group American Petroleum Institute (API) late Tuesday.

That figure was well short of the 2.3 million-barrel draw that analysts expect the U.S. government's Energy Information Administration to announce in official inventory data due at 10:30 a.m. EDT (1430 GMT).

"I am looking for a total draw of closer to 4 million barrels," said Scott Shelton, energy futures broker at ICAP in Durham, North Carolina.

Brent was down 20 cents, or 0.5 percent, at $44.67 a barrel by 9:55 a.m. EDT (1355 GMT). It fell to $44.17 earlier, some three cents above a two-month low hit on Tuesday.

WTI crude rose 10 cents at $43.02 a barrel. It slid earlier to $42.51.

The dollar turned flat, erasing early gains, after a steeper-than-forecast 4 percent drop in durable goods orders in June, which rekindled some concerns about the manufacturing sector. The central bank is expected to keep rates unchanged as it wraps up its two-day policy meeting on Wednesday.

Some analysts said they expect crude prices to fall a little more in the short term amid the supply glut in oil and weakening demand.

"My view is that oil prices will find a low between $39 and $42 per barrel over the coming weeks," said Ric Spooner, chief market analyst at CMC Markets.

Other market participants think the oversupply concerns are exaggerated.

"The only people now getting big on the short side are retail customers and retail customers get it wrong more than they get it right," said Salvatore Recco, who helps oversee about $2 billion of client money, including in oil, at Gravity Investments in Denver, Colorado.

"I think we will stay between $40 and $45. We'd only tell our customers to worry about the oil outlook when the central banks issue a serious downgrade to the economic outlook."

(Additional reporting by Karolin Schaps in LONDON, Stine Jacobsen in OSLO and Henning Gloystein in SINGAPORE; Editing by David Goodman and Marguerita Choy)