Brent oil pared gains to around $124 a barrel on Wednesday and U.S. crude fell as a big rise in U.S. inventories countered support from a weaker dollar before a Federal Reserve statement expected to keep a loose monetary policy.
U.S. crude stockpiles rose by 6.16 million barrels, the U.S. Energy Information Administration said in a weekly report at 1430 GMT, much more than expected, while supplies of gasoline and diesel fell.
After the market's knee-jerk reaction, we didn't see any new selling. Falling fuel inventories seem to provide support, said Gene McGillian of Tradition Energy in Connecticut. The market is waiting for the Fed announcement later.
Brent crude for June was up 25 cents to $124.39 a barrel by 1508 GMT. On Tuesday, it gained 48 cents to settle at $124.14 a barrel, having bounced off a $122.78 low. U.S. crude was down 35 cents to $111.86.
Dollar weakness lent oil and other dollar-denominated commodities such as gold some support.
The dollar slid to a three-year low against other major currencies as investors bet that the Fed, after its meeting that ends on Wednesday, would keep an easy policy. Its decision is due at 1630 GMT.
Dollar weakness, and continuing trouble around the world, is supporting the market, said Christopher Bellew, a broker at Bache Commodities.
Violence in the Middle East has spilled over to Syria and Yemen. Italian oil and gas group Eni
Lending support to Brent, BP said the North Sea's Forties pipeline may have to be shut for a few days later this year due to the discovery of an unexploded German mine from World War Two.
The crude inventory rise reported by the EIA was larger than the 4.9 million-barrel increase given by industry group the American Petroleum Institute on Tuesday.
Gasoline stocks fell 2.51 million barrels, compared with forecasts for a 1.1 million barrel drop, the EIA said. Distillates, expected to rise, fell 1.81 million barrels.
U.S. crude has risen more than 20 percent so far this year and consumers in the world's largest economy are starting to show signs of being hurt by higher fuel costs.
President Obama on Tuesday urged producers to lift crude output as he sought to deflect public anger over high gasoline prices. U.S. motor fuel prices have become a heated political issue after pushing toward $4 a gallon.
Obama's appeal followed comments from top oil exporter Saudi Arabia earlier in the day that it was not comfortable with high oil prices and a strike last week by truckers in China protesting over higher fuel costs.
OPEC has declined to make any official change in its oil output policy, but members including Saudi Arabia have been informally adding extra supplies.
(Additional reporting by Manash Goswami in Singapore and Reuters energy desk in New York; editing by Jason Neely and Jane Baird)