By Arunima Kumar

(Reuters) -Oil edged up on Wednesday as a drop in U.S. crude inventories offered some support, although investors stayed cautious ahead of a potential interest rate cut by the U.S. Federal Reserve and its projections for 2025.

Brent futures rose 53 cents, or 0.7%, to $73.72 a barrel at 1436 GMT, while U.S. West Texas Intermediate crude climbed 54 cents, or 0.8%, to $70.62.

The Fed is expected to cut rates by a quarter point, but to signal a cautious approach to loosening monetary policy next year.

“A quarter-point cut itself is unlikely to shake markets much. Investors may focus more on hints and clues on how likely a January pause is, as well as on how many rate cuts policymakers are contemplating throughout 2025,” said Charalampos Pissouros, senior investment analyst at brokerage XM.

The U.S. central bank will release its policy statement at 2 p.m. ET (1900 GMT), followed by remarks from Chair Jerome Powell.

Lower rates decrease borrowing costs, which can boost economic growth and demand for oil.

“Oil prices ought to see more of a reaction to the crude inventory draw seen in the API data overnight… however, such is the diverting power of central bank rate decisions that investors in all of the trading mediums are taking a very light touch to proceedings” said John Evans, analyst with oil broker PVM.

In the U.S., American Petroleum Institute data on Tuesday showed that crude stocks fell by 4.69 million barrels in the week ended Dec. 13, a source said. Gasoline inventories rose by 2.45 million barrels, and distillate stocks rose by 744,000 barrels, according to the source.

Analysts projected U.S. energy firms pulled about 1.6 million barrels of crude from storage during the week ended Dec. 13, according to a Reuters poll on Tuesday.

The U.S. Energy Information Administration will release its oil storage data on Wednesday.

“Trade war fears and uncertainty on how aggressively the U.S. Fed will cut interest rates next year is likely capping the upside for now,” UBS analyst Giovanni Staunovo said.

(Reporting by Arunima Kumar in Bengaluru, Colleen Howe in Beijing and Jeslyn Lerh in Singapore; Editing by Sonali Paul, Louise Heavens, Chizu Nomiyama and Jonathan Oatis)