A sticker reads crude oil on the side of a storage tank in the Permian Basin in Mentone, Loving County, Texas, U.S. November 22, 2019. Picture taken November 22, 2019.
A sticker reads crude oil on the side of a storage tank in the Permian Basin in Mentone, Loving County, Texas, U.S. November 22, 2019. Picture taken November 22, 2019. Reuters / Angus Mordant

Oil prices held steady on Wednesday as concerns about weaker demand offset industry data that showed a larger-than-expected drawdown in U.S. crude stockpiles.

Brent crude futures were at $104.55 a barrel at 0640 GMT, up 15 cents, or 0.1%. U.S. West Texas Intermediate (WTI) crude rose 27 cents, or 0.5%, to $95.25 a barrel.

After Tuesday's settlement, industry group the American Petroleum Institute said crude stocks in the United States fell by 4 million barrels last week.

That was four times bigger than the decline expected by analysts in a Reuters poll. [EIA/S]

"A sharper decline in inventories should support oil prices, but the rebound was limited by concerns about potential weak demand, and the White House stated that it will further release strategic reserves," said Leon Li, a Shanghai-based analyst at CMC Markets.

In addition, the prospect the U.S. Federal Reserve will announce an aggressive rate rise later on Wednesday weighed on sentiment and limited the rise in oil prices, he said.

The U.S. Federal Reserve is expected to raise interest rates by 75-basis-points later on Wednesday, underlining concern about the outlook for U.S. demand and the prospect of a stronger dollar, which would make dollar-denominated commodities more expensive for buyers holding other currencies.

"With the market backdrop generally cautious amid the threat of recession due to aggressive front-loaded rate hikes, traders seem to need little justification to trim long positions into rallies ahead of another expected jumbo Fed hike, effectively keeping prices capped for now," said Stephen Innes, managing partner at SPI Asset Management, in a note on Wednesday.

The Biden administration said on Tuesday it will sell an additional 20 million barrels of oil from the country's Strategic Petroleum Reserve as part of a previously announced plan to tap the facility to calm oil prices boosted by Russia's invasion of Ukraine and a recovery in demand following the COVID-19 pandemic.

The administration said in late March it would release a record 1 million barrels of oil per day for six months from the SPR. The United States has already sold 125 million barrels from the reserve with nearly 70 million barrels delivered to purchasers.