By Arunima Kumar

(Reuters) -Oil prices traded in a narrow range on Wednesday as investors stayed cautious ahead of a potential interest rate cut by the U.S. Federal Reserve and its projections for 2025, while a draw in inventories offered some support.

futures rose 42 cents, or 0.57%, to $73.61 a barrel at 1201 GMT, while U.S. West Texas Intermediate crude climbed 47 cents, or 0.67%, to $70.55 a barrel.

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 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.

“There is a prevailing narrative that Trump’s policies may lead to inflation, which, coupled with concerns about potential interference with the Federal Reserve’s autonomy, is causing oil investors to remain cautious,” said Priyanka Sachdeva, senior market analyst with Phillip Nova.

Meanwhile, the European Union on Tuesday adopted a 15th package of sanctions against Russia over its invasion of Ukraine, adding an additional 33 vessels from Russia’s shadow fleet used for transporting crude or petroleum products. Britain also sanctioned 20 ships for carrying illicit Russian oil.

The fresh sanctions could stoke further oil price volatility though so far they have not succeeded in shutting Russia out of the global oil trade.