By Nicole Jao

NEW YORK (Reuters) - Oil prices fell around 1% on Wednesday, retreating for a third straight day on expectations that U.S. interest rate cuts might be deferred due to sustained inflation, which could weaken oil demand.

futures were down 67 cents, or 0.81%, at $82.21 a barrel, while U.S. West Texas Intermediate crude (WTI) was down 75 cents, or 0.95%, to $77.91 at 1:40 p.m. EDT (1740 GMT). Both benchmarks settled about 1% lower on Tuesday.

Fed policymakers said on Tuesday the U.S. central bank should wait several more months to ensure that inflation really is back on track toward the Fed's 2% target before cutting rates.

Investors are awaiting minutes from the Fed's last policy meeting, due at 2 p.m. ET (1800 GMT), for clarity on the timing of a rate cut.

"The Federal Open Market Committee (FOMC) minutes will be scrutinized for the Fed's assessment of bumpy Q1 inflation and clues on the timing and extent of potential interest rate cuts in 2024," ANZ analysts said in a report.

Lower interest rates reduce borrowing costs, freeing up funds that could boost economic growth and demand for oil.

The U.S. Energy Information Administration on Wednesday said stocks rose by 1.8 million barrels during the week ended May 17. That compares with a 2.5-million-barrel draw analysts forecast in a Reuters poll and a 2.48-million-barrel rise shown in the data from the American Petroleum Institute (API), an industry group. [EIA/S] [EIA/S]

"There was strong demand from refiners for crude oil and the gasoline demand was one of the highest we've seen in quite some time, but a part of that is certainly pre-Memorial Day weekend stockpiling by suppliers," said John Kilduff of Again Capital. "I'm not sure if that kind of demand is going be holding up over the coming weeks."

Crude markets have been pressured by weakening fundamentals, with OPEC+ likely extending production cuts at its June meeting to support prices, according to Ole Hansen, Saxo Bank's head of commodity strategy.

Physical crude markets have been weakening. In another sign that concern of tight prompt supply is easing, the premium of Brent's first-month contract over the second, known as backwardation, is close to its lowest since January.

"The view on the fundamental outlook remains grim," said Tamas Varga, an analyst with oil broker PVM.