Oil steadied at below $72 a barrel on Wednesday, after rising more than 2 percent in the previous session, as a bearish industry report showing a surprise build in U.S. crude oil stockpiles was offset by further weakness in the dollar.
U.S. crude for November delivery slipped 11 cents to $71.63 a barrel by 0556 GMT (1:56 a.m. EDT), after having fallen as much as 63 cents earlier. The October contract, which expired on Tuesday, rose $1.84 to settle at $71.55 a barrel.
London Brent crude dipped 31 cents to $70.22.
The API report is bearish and it's showing that energy demand in the U.S. is still very weak, said Benson Wang, a trader at Commodity Broking Services in Sydney.
The dollar is offering some support but it'd be worrying for the U.S. economy and its inflation rate if the dollar falls much further.
The ailing dollar fell to a one-year low against a basket of currencies on Wednesday, with the dollar index <.DXY> falling 0.29 percent to 75.927 points, as speculators dumped the low-yielding greenback ahead of a Federal Reserve policy announcement later in the day.
While the Federal Reserve Bank is widely expected to hold interest rates steady, markets will be watching for comments later on Wednesday that indicate the Fed might wind back its super-accommodative policy stance in view of improving economic data, which would boost the dollar, analysts said.
Although a weak dollar is typically good news for commodities prices, a bearish inventory report from the American Petroleum Institute (API) has muted investors' optimism.
The API report, seen as a precursor to more authoritative data from the U.S. Energy Information Administration due later on Wednesday, showed crude stocks rose 276,000 barrels in the week to September 18, against a Reuters poll forecast for a drawdown of 1.5 million barrels.
The increase in crude inventories was driven by higher imports, that rose 219,000 barrels per day (bpd) as well as slower refinery runs, which dipped 92,000 bpd, the API said in its weekly report.
Separately, OPEC kingpin Saudi Arabia told Reuters in an interview on Tuesday that demand for Saudi crude was increasing, and that was reflective of the world's economy recovering from its worst recession since the Great Depression.
Saudi Arabia's oil minister Ali al-Naimi also said that OPEC would not need to cut output next year, based on latest figures on supply and demand.
(Reporting by Fayen Wong; Editing by Clarence Fernandez)