Oil prices edged higher on Wednesday after data showed U.S. crude stockpiles fell last week as refiners slowly ramped up output ahead of the summer driving season, while a stronger dollar capped gains.

Brent crude oil futures settled 42 cents, or 0.5%, higher at $83.58 a barrel. U.S. West Texas Intermediate crude futures rose 61 cents, or 0.8%, to $78.99 a barrel.

U.S. crude inventories fell by 1.4 million barrels to 459.5 million barrels last week, government data showed, compared with a 1.1 million-barrel draw that analysts forecast and industry data that showed a 509,000-barrel increase. [EIA/S] [API/S]

"Stronger refining activity and exports have encouraged a minor draw to crude inventories, helping unwind some of last week's large build," said Matt Smith, lead oil analyst at Kpler.

Refinery utilization rates rose by 1 percentage point to 88.5% of total capacity, but was still lower than rates of 91% a year ago ahead of the Memorial Day weekend at the end of May that kicks off the peak season for gasoline demand.

"Gasoline demand is still below 9 million barrels (per day) ahead of the start of the summer driving season. That is a pretty grim situation here," said Bob Yawger, director of energy at Mizuho.

A strengthening dollar , which gained as investors bet on the U.S. economy outperforming peers, weighed on crude oil prices. A stronger greenback dampens oil demand by making the dollar-denominated commodity more expensive for investors holding other currencies.

Hopes of a ceasefire in Gaza have put some downward pressure on oil prices in recent trading sessions, with some analysts saying the risk premium on oil had declined in tandem.

"Taking away the current geopolitical trigger leaves the market staring into a world of sticky inflation in the U.S. that is countered by interest rates that not only keep the U.S. dollar elevated but make any sort of commodity trading more expensive," PVM Oil analyst John Evans said.

The U.S. believes negotiations on a Gaza ceasefire should be able to close the gaps between Israel and Hamas. U.S. Central Intelligence Agency Director William Burns traveled to Israelon Wednesday and met with Israeli Prime Minister Benjamin Netanyahu, an Israel official said.