World oil prices retreated on Wednesday following fresh indications of growing oversupply ahead of the US Federal Reserve’s long-awaited decision on interest rates.

World oil prices retreated on Wednesday following fresh indications of growing oversupply ahead of the US Federal Reserve's long-awaited decision on interest rates.

Traders were also awaiting the latest weekly snapshot of oil inventories from the US government's Department of Energy, after data from industry body the American Petroleum Institute (API) overnight.

US benchmark West Texas Intermediate for delivery in January was down 26 cents at $37.09 a barrel.

At around 1100 GMT, Brent crude for January stood at $37.40, down $1.05 compared with Tuesday's close.

Crude futures had climbed on Tuesday, extending a rebound from recent seven-year lows as cautious investors awaited the Fed, expected to order the first hike since 2006.

"WTI gave back some of those gains ... as a report from the API showed that US crude inventories had increased by 2.3 million barrels in the week through to 11 December," said IG analyst Bernard Aw.

"Furthermore, markets are expected to stay cautious ahead of the (Fed policy) meeting, even though there is an overwhelming consensus that the Federal Reserve is poised to raise interest rates this Thursday (Asia time)."

The US central bank will announce its decision at 1900 GMT Wednesday, along with Fed projections for growth, inflation and interest rates over the next two years.

Higher US interest rates will make it costlier for countries with weaker currencies to purchase oil, further dampening demand.

Prices have fallen more than 60 percent since June 2014 owing to anemic demand, a slowdown in key energy-consuming markets like China and a global glut.

The refusal by the Organization of the Petroleum Exporting Countries (OPEC) in early December to resort to production caps accelerated the fall in the past two weeks.

Analysts say Iranian oil also looks certain to re-enter markets next year after the lifting of sanctions.

The UN watchdog International Atomic Energy Agency on Tuesday said it was closing its "consideration" of "possible military dimensions" of the program, clearing one hurdle for sanctions relief under a deal between Tehran and six major powers.

"Sanctions against Iran can be lifted as soon as January as the IAEA ended its 12-year probe into the Islamic nation's nuclear research, which can put downward pressure on oil," Bloomberg News quoted Hong Sung Ki, a commodities analyst at Samsung Futures Inc. in Seoul, as saying.

"If US supplies expanded, it can be a strong bearish factor because seasonally it's the time for stockpiles to shrink."