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 $1.26, or 1.7%, to $74.78 a barrel by 11:08 a.m. (1508 GMT) U.S. West Texas Intermediate crude futures shed $1.2, or 1.7%, to $70.54.
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. Gasoline inventories also rose last week while distillate stockpiles fell.
“As we continue to gradually exit from peak refinery maintenance at the start of the month, refinery runs have climbed back above 16 million bpd after bottoming out two weeks ago,” said Matt Smith, lead oil analyst at Kpler.
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)
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