Oil markets diverge after another big U.S. stock build, await Fed

NEW YORK (Reuters) - Oil markets diverged on Wednesday with Brent supported while U.S. crude prices fell after domestic inventories hit record highs for a 10th week and supplies at the futures' delivery hub hit a peak.

Traders, however, said the market seemed to be holding out from making new lows on bets the U.S. central bank may hint at a sooner-than-later rate hike.

U.S. crude inventories rose 9.6 million barrels to a new record of 458.5 million barrels in the week to March 13, figures from the government-run Energy Information Administration (EIA) showed.[EIA/S]

Benchmark Brent oil, initially down, turned choppy after the EIA data, which also a bigger than expected drop in gasoline stocks and a small build in distillates despite forecasts for a drawdown.

U.S. crude fell almost 3 percent after all-time high for crude stocks piled up at the Cushing, Oklahoma delivery point.

Brent was up 23 cents at $53.74 a barrel by 12:21 p.m. EDT (1621 GMT). It had fallen almost 90 cents earlier. U.S. crude fell $1.10 to $42.36, after hitting a six-year low of $42.03 earlier.

John Kilduff, a partner at New York energy hedge fund Again Capital, said the EIA numbers on U.S. crude builds were "too big a factor to ignore".

"Speculation over storage capacity limits will only increase," he said.

With the inventory data out, the market turned its focus to on a U.S. Federal Reserve statement due at 2:00 p.m. EDT (1800 GMT) after the central bank's latest policy meeting. [USA/FED]

"The Fed could trump the EIA, especially if they cease using the word 'patient' in line with any potential rate hike. The dollar could go gangbusters on that, and pretty much all commodities, including oil, will be impacted," said Phil Flynn, analyst the Price Futures Group in Chicago.

The dollar was weaker against a basket of currencies <.DXY> ahead of the Fed statement. A weaker greenback strengthens the appeal for dollar-denominated commodities among holders of other currencies. [USD/]

Traders expect the dollar to rise sharply if the Fed signals a rate hike by June.

(Additional reporting by Himanshu Ojha in London and Keith Wallis and Jessica Jaganathan in Singapore; Editing by Dale Hudson, David Evans and Marguerita Choy)

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