Brent crude oil dropped towards $103 per barrel on Wednesday after data showing a surprise jump in US gasoline stockpiles sparked worries that summer demand in the world's top oil consumer could be weaker than expected.

The American Petroleum Institute said on Tuesday U.S. gasoline inventories rose by 3 million barrels last week, suggesting the U.S. domestic fuel market would be well supplied during the peak driving season.

Investors awaited oil inventory figures from the U.S. government's Energy Information Agency (EIA), due at 10:30 a.m. EDT (1430 GMT) to see if they confirmed the data.

But a slight weakening of the dollar from 34-month highs helped steady oil, which tends to move inversely to the U.S. currency.

Brent crude fell 60 cents to $103.31 per barrel by 1120 GMT, after shedding nearly a dollar in the previous session. U.S. crude lost 60 cents to $95.58.

"Oil fundamentals are weakening with less demand than expected and better supplies," said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt.

"Higher U.S. gasoline stockpiles, revised demand growth estimates and more oil from non-OPEC producers are all negative."

FED "CAUTIOUS"

Losses were limited ahead of testimony by U.S. Federal Reserve Chairman Ben Bernanke, expected to shed light on U.S. monetary policy when he speaks to a congressional committee at 10:00 a.m. EDT (1400 GMT).

The U.S. central bank's quantitative easing programmes have released hundreds of billions of dollars into financial markets over the last few years, boosting many commodities, and any sign the easing programmes could end would be bearish for oil.

Bernanke's remarks will be followed by the release at 2.00 p.m. EDT (1800 GMT) of minutes of the last Federal Reserve meeting, which economists also expect to give further details of how it will eventually manage the exit from ultra-easy policy.

Some economists expect Bernanke to suggest the Fed will keep monetary policy easy for the time being, a signal that would be supportive for oil.

"We expect Bernanke and the Fed will remain cautious in any tapering of the current $85 billion per month asset purchase programme," ANZ analysts said in a note. "The minutes from the FOMC's May meeting will also likely reflect this."

Tuesday's API data showed a build of 532,000 barrels in U.S. crude stockpiles during the week ended May. 17. Analysts had expected crude stocks to drop 800,000 barrels and gasoline stocks to remain unchanged from a week ago.

Investors will also watch initial purchasing manager's indexes for May due on Thursday, for signs of economic revival in the three key consumer regions - China, the United States and the euro zone. Reuters surveys suggest they may show a slight pickup from April but not enough to dispel fears of a sluggish outlook. – Reuters