Crude oil futures slipped again on Wednesday in volatile trade ahead of the release of weekly U.S. oil inventory data expecting to show an increase in crude stockpiles later in the day.

Oil prices seesawed with the dollar index <.DXY>, which was struggling to recover from a three-year low hit on Tuesday, with Brent reversing earlier gains to dip into negative territory.

By 1222 GMT, U.S. light crude futures were 57 cents down at $110.48 a barrel, while ICE Brent crude futures were 29 cents down at $122.16 a barrel.

Intraday (there is) some direction from the greenback and equities, but really all are eagerly awaiting US non farm payrolls on Friday and today's EIA numbers, VTB Capital's analyst Andrey Kryuchenkov said.

The American Petroleum Institute (API) said on Tuesday crude stocks rose by 3.2 million barrels for the week ended April 29, contrary to analysts' expectations for a gain of 2.0 million barrels.

The U.S. Energy Information Administration's (EIA) report will be released on Wednesday at 1430 GMT.

We are waiting for the DOE (Department of Energy) stats this afternoon, we are expecting an indication of where demand is on gasoline as prices are at highs right now, Credit Agricole CIB's analyst Christophe Barret said.

A broader sell-off in commodities that dragged equities lower on Tuesday dampened investor appetite for risk-taking, on fears that huge price gains last month had made everything from oil to silver too costly.

We are continuing to see a growing number of commodity complexes struggle, as investors begin to appreciate that the macro environment going into the second half of the year -- one marked by high inflation and interest rates -- will be far less hospitable for the asset class, MF Global analysts wrote in a note.

CHINA INFLATION, FEAR PREMIUM

China is expected to further tighten monetary policy to curb inflation, a move that could dampen demand in the world's biggest energy consumer.

The official China Securities Journal cited central bank vice governor Yi Gang as saying China would keep mopping up excess cash in the economy by raising cash reserve requirements for banks.

In a separate story, the publication cited industry analysts as predicting the central bank would raise required reserves again in May, its fifth time this year, to absorb some of the money created from hefty foreign inflows this year.

However, the impact on oil prices was likely to be muted, given the strength of Chinese demand, analysts said.

We have already seen some moderation in economic activity in China, but the oil market has not seen any obvious slowdown despite previous tightening, said Barclays Capital commodities analyst Yinxi Yu. It is necessary to rein in the overheating economy. Chinese oil demand grew at 1 million barrels per day in Q1, so slowing down is a healthy move.

Analysts said a fear premium was in place due to ongoing tensions in oil-producing regions of North Africa and the Middle East and the recent death of al Qaeda leader Osama bin Laden.

There's a $20 premium built in the price due to the Middle East crisis and potential reprisals following bin Laden's death. That will provide a floor to prices for some time to come, said CMC analyst Ben Le Brun.

In Libya, there was no let-up in the conflict as fighting between rebels and forces loyal to Muammar Gaddafi forced thousands of refugees to flee western Libya on foot to the Tunisian border and by boat to Europe, the United Nations said on Tuesday.

(Additional reporting by Francis Kan in Singapore; editing by Anthony Barker)

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