UPDATE 8-Oil slump resumes on U.S. supply build, expected Fed rate hike

* API data shows surprise rise in stocks
* Brent this week has neared its Dec 2008 low of $36.20
* EIA data more bearish than forecast
* Federal Reserve rate decision expected 1900 GMT

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By Simon Falush
LONDON, Dec 16 (Reuters) - Oil fell on Wednesday on fresh
evidence of growing global oversupply, and as investors awaited
the outcome of a U.S. Federal Reserve meeting at which interest
rates are likely to be raised, boosting the dollar and
pressuring commodities.
Brent LCOc1 was down $1.14 at $37.31 a barrel at 1543 GMT.
On Tuesday, the contract closed up 53 cents in its first gain in
eight days.
Analysts are watching for any test of Brent's December 2008
low of $36.20, with a break below that level taking the
benchmark to levels not seen since 2004.
West Texas Intermediate CLc1 crude futures were down $1.27
at $36.08 per barrel, after rising more than $1 on Tuesday. WTI
was supported by looming changes to legislation that are
expected to enable exports of U.S. crude oil.
The overwhelmingly bearish sentiment that has pushed Brent
from above $115 per barrel in June last year returned to the
fore as fresh evidence emerged that low prices are doing nothing
to ease heavy oversupply.
Reinforcing a picture of a heavily over-supplied market, data
from the U.S. Energy Information Administration showed crude
inventories rising by 4.8 million barrels in the last week,
compared with analysts' expectations for an decrease of 1.4
million barrels. EIA/S
"Only the staunchest contrarian could derive anything
bullish out of that report," said Peter Donovan, broker at
Liquidity Energy in New York.
"The actual numbers were more bearish than all expectations,
as well as more bearish than the API report released last
night."
He was referring to data on Tuesday from industry group the
American Petroleum Institute which showed a surprise rise of 2.3
million barrels in U.S. crude stockpiles last week.
Investors are also positioned for a rise in interest rates,
which would support the dollar. A stronger dollar makes
dollar-priced oil more expensive to holders of other currencies.
"The market sentiment is that this will lead to a higher
dollar and push commodity prices lower," said Hans van Cleef,
senior energy economist at ABN Amro in Amsterdam.
Markets are already prepared for a 25-basis-point increase
but will be closely watching the Fed's policy statement for
indications of where rates will go next year.
The Federal Reserve is scheduled to release its decision on
Wednesday at 2 p.m. EST (1900 GMT).
On Wednesday, Brent's premium to WTI fell to just 27 cents,
its lowest since January, and the North Sea benchmark may drop
further relative to U.S. crude this week if the U.S. government
repeals its decades-old ban on crude exports.
Scrapping the ban would lead to an abrupt end to a
years-long fight triggered by the domestic shale boom and be a
win for the U.S. oil industry and Republicans, who had argued
the ban was an archaic relic of the Arab oil embargo era.