NEW YORK (Reuters) - Oil fell as much as 5 percent on Wednesday after U.S. government data showed a big, surprise build in crude inventories and the Federal Reserve hiked interest rates, a move that should support the dollar and pressure commodities prices.
Brent and U.S. crude's West Texas Intermediate (WTI) futures settled down more than $1 a barrel each on their spot contracts, ending a two-day rebound from seven-year lows hit earlier in the week.
U.S. Energy Information Administration data showed crude inventories rose 4.8 million barrels last week. Analysts in a Reuters poll had forecast a decrease of 1.4 million barrels.
"This data is decidedly bearish as crude stocks now sit at record levels for this time of year and just off the all-time high of 490.9 million barrels," said Chris Jarvis, president and senior analyst at Caprock Risk Management in Maryland.
In global benchmark Brent, the front-month January contract settled down $1.26, or 3.3 percent, at $37.19 a barrel before its expiry.
January Brent fell to as low as $37.11 during the session, within $1 of 2004 lows. Brent's February contract, which will be front-month from Thursday, closed down $1.34 at $37.39.
WTI January, the front-month contract, settled down nearly 5 percent, or $1.83, at $35.52 a barrel. Its financial crisis low was $32.40, set in December 2008.
Higher U.S. interest rates are expected to support the dollar and weigh on demand for oil and other commodities denominated in the greenback from users of the euro and other currencies.
On Wednesday, the surprise build in U.S. crude stockpiles pressured oil prices more than the Fed rate hike, which was expected and barely lifted the dollar.
"Regardless, this remains a complex that should be worked strictly from the short side," Jim Ritterbusch, founder of Chicago-based oil consultancy Ritterbusch & Associates, said in a research note.
He revised his downside target for WTI, saying the breach of the December 2008 low of $32.40 had a "probability of occurrence as high (as) ... 90 percent".
Additional reporting by Scott Disavino, Simon Falush in London; Editing by Dale Hudson, Keith Weir and David Gregorio