Oil prices fell on Wednesday after U.S. government data showed a smaller-than-expected decline in crude inventories last week, while investors monitored progress in Russia-Ukraine peace talks and awaited the U.S. interest rate decision.

At 1:05 p.m. ET, Brent crude futures dropped 14 cents, or 0.23%, to $61.80 per barrel. U.S. West Texas Intermediate (WTI) crude futures declined 15 cents, or 0.26%, to $58.10 per barrel.

Data from the U.S. Energy Information Administration (EIA) revealed that crude inventories fell by 1.8 million barrels in the week ending December 5. Analysts surveyed by Reuters had forecast a 2.3 million-barrel draw, while the American Petroleum Institute (API) had estimated a 4.8 million-barrel drop.

ING analysts noted in a report that while the oil market is moving deeper into an expected supply surplus, risks remain from Russian supply.

Ukrainian President Volodymyr Zelensky stated that Ukraine and its European partners would soon submit a "refined document" to the U.S. outlining a peace plan to end the war with Russia.

A potential peace deal between Ukraine and Russia could lead to the lifting of international sanctions on Russian companies, thereby unlocking restricted oil supplies.

Additionally, the EIA earlier projected higher U.S. oil production this year than previously expected, raising its 2025 output forecast by 20,000 barrels per day to a record 13.61 million barrels per day.