By Arathy Somasekhar
HOUSTON (Reuters) - Oil prices fell about 1% on Wednesday, after data showed U.S. crude inventories fell less than expected and the Federal Reserve raised interest rates by a quarter of a percentage point.
Brent crude futures closed down 72 cents, or 0.9%, at $82.92 a barrel, while U.S. West Texas Intermediate (WTI) crude settled at $78.78, down 85 cents, or 1.1%.
Both benchmarks fell by more than $1 earlier in the session, after hitting three-month highs on Tuesday.
The rate hike, the Fed's 11th in its last 12 meetings, set the benchmark overnight interest rate in the 5.25%-5.50% range, and the accompanying policy statement left the door open to another increase.
Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand.
Meanwhile, U.S. crude inventories drew by 600,000 barrels last week, according to the Energy Information Administration, compared with estimates for a draw of 2.35 million barrels. Industry group American Petroleum Institute figures had indicated a 1.32 million-barrel build. [EIA/S] [API/S]
Gasoline and diesel stocks also drew less than expected, EIA data showed.
"The drawdowns weren't all that spectacular. It was a neutral to bearish report, plus the Federal Reserve rate hike can have a dampening hit on demand and prices," said John Kilduff, partner at Again Capital LLC in New York.
Oil prices have rallied for four weeks, buoyed by signs of tighter supplies, largely linked to output cuts by Saudi Arabia and Russia, as well as Chinese authorities' pledges to shore up the world's second-biggest economy.
Although the market expects Saudi Arabia to roll over its August output cuts to September, sources told Reuters on Wednesday that Russia is expected to significantly increase oil loadings in September, bringing to an end steep export cuts.
Meanwhile, concern is high over whether China, also the world's second-biggest oil consumer, will deliver on its policy pledges.
"We still need to wait for actual policies - the risk is that these policies fall short of expectations," said ING head commodities strategist Warren Patterson.
"The market will continue to be in a tug-of-war between tightening global supply and fears of slowing demand due to the global economic slowdown," Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan (OTC:NSANY) Securities, added.