Oil settled above $49 a barrel on Wednesday, slightly up on the day but well off session highs on news that Federal Reserve officials still see a grim economic outlook.

U.S. light crude for May delivery settled at $49.38 a barrel, up 23 cents but down from a high of $51.30. London Brent crude settled at $51.59, up 37 cents.

Stocks are coming off with the FOMC meeting minutes, energy is now following lower, said Stephen Schork, editor of the Schork Report in Philadelphia.

Both oil futures and U.S. stocks in trimmed earlier gains after minutes from a March Federal Reserve meeting showed officials still see financial markets as fragile and unsettled.

The drop in oil prices continues a trend in which commodity prices closely track Wall Street, analysts said.<.N>

Outside markets continue to trump weekly data as the commodities take their cue from global equity markets, said Chris Jarvis, senior analyst at Caprock Risk Management in Hampton Falls, New Hampshire.

Oil prices rose early after the U.S. Energy Information Administration reported a surprise draw in distillate stocks last week.

The big distillate draw is a big surprise and shocked everybody and that has a lot to do with crude turning to the upside here, said Mark Waggoner, president of Excel Futures in Huntington Beach, California.

Demand for distillates, the primary fuel of industry, has been soft due to the ailing economy. Over the past four weeks, demand for the fuel was down 7.2 percent from a year earlier.

The EIA data also showed crude oil inventories rose 1.7 million barrels last week to a fresh 16-year high, in line with expectations. Stockpiles of distillates like diesel and jet fuel dropped more than expected.

Analysts said the relatively modest crude oil build of 1.7 million barrels in the EIA data was also supportive because it was far smaller then the 6.9-million-barrel increase reported Tuesday by industry group the American Petroleum Institute.

A drop in oil stockpiles at the NYMEX delivery point in Cushing, Oklahoma, may also have added support, analysts said.

(Additional reporting by Robert Gibbons and Gene Ramos in New York and Chris Baldwin in London; Editing by Christian Wiessner)