By Nicole Jao
NEW YORK (Reuters) -Oil prices fell on Wednesday after data showed U.S. crude inventories rose by more than expected even as refining activity rebounded, though futures remained up about 2% this week as traders factored in continuing conflict in the Middle East.
Brent crude futures dropped $1.2, or 1.6%, to $74.84 a barrel by 1:00 p.m. (1700 GMT) U.S. West Texas Intermediate crude futures shed $1.11, or 1.55%, to $70.63.
Oil had settled higher in the previous two sessions, paring last week’s losses of more than 7%. Those declines stemmed from worries about Chinese demand and some easing concerns around Middle East oil supply being disrupted, but investor sentiment appeared to reverse at the start of this week.
In the U.S., crude inventories rose by 5.5 million barrels to 426 million barrels in the week ended Oct. 18, the Energy Information Administration said, exceeding analysts’ expectations in a Reuters poll for a 270,000-barrel rise.
“The large crude oil inventory build this week is offsetting the drop last week. But a lot of this is a result of the rebound in crude oil imports, a lot of it had to do with the hurricane,” said Andrew Lipow, president of Lipow Oil Associates, referring to the previous week’s drawdown due to lower imports and demand post Hurricane Milton.
As facilities exit from seasonal fall maintenance refinery runs continued to climb, yielding a build in gasoline and distillates showed a minor draw last week, analysts said.
Also pressuring oil prices, the dollar index rose on Wednesday to its highest since late July. A firmer U.S. currency can hurt demand for dollar-denominated oil from buyers using other currencies.
The impact of the crude stocks build on prices was countered somewhat by persistent concerns over potential oil supply risk from conflict in the Middle East.
“The market continues to wait for Israel’s response to Iran’s missile attack,” ING analysts said on Wednesday, adding that Tuesday’s price strength was possibly because of the lack of any outcome from U.S. Secretary of State Antony Blinken’s latest visit to Israel.
Blinken pushed on Wednesday for a halt to fighting between Israel and militant groups Hamas and Hezbollah, but heavy Israeli air strikes on a Lebanese port city Tyre demonstrated that there was no respite.
“Market participants priced for the Middle East conflict to drag for longer, with a ceasefire deal potentially seeing some gridlock,” said IG market strategist Yeap Jun Rong.
(Reporting by Nicole Jao in New York, Paul Carsten and Robert Harvey in London and Jeslyn Lerh in SingaporeAdditional reporting by Laila Kearney in New YorkEditing by David Goodman, Ros Russell and David Gregorio)
