Oil prices dropped on Wednesday after a report showed an increase in U.S. crude inventories, however worldwide markets stayed tense in the midst of an intensifying political crisis in Venezuela, tightening U.S. sanctions on Iran, and continuing OPEC supply cuts.
Brent crude oil futures were at $71.52 per barrel, dropped 54 cents or 0.8 percent from their last close. U.S. West Texas Intermediate (WTI) crude futures tumbled 66 cents or 1 percent at $63.25 per barrel.
U.S crude stocks soared by 6.8 million barrels to 466.4 million barrels in in the week to April 26, manufacturing group the America Petroleum Institute (API) said on Tuesday.
"Crude prices are off ... after the weekly API oil inventory report showed a build of 6.8 million barrels, up from the draw of 3.1 million barrels we saw last week," said Edward Moya, senior market analyst at futures brokerage OANDA.
The crisis in major oil producer Venezuela, where there is an impasse between President Nicolas Maduro and opposition leader Juan Guaido. A lot of observers fear this could cause rising violence and more disruptions to crude supply.
Oil markets have now tightened this year because of supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) as well as U.S. sanctions on Iran’s oil exports.
Last November, Washington re-imposed sanctions on Tehran, however originally enabled its major consumers limited imports for another six months.
These exceptions expire on Wednesday and Washington has said it will not prolong any waivers as it goals to drive down Iranian crude exports to zero.
Norbert Ruecker, head of research at Swiss bank Julius Baer said, "The Iran sanctions come on top of already fragile supplies and raise concerns about tightening markets."
Some analysts, though, say worldwide oil markets are still adequately supplied.
Stephen Innes, head of trading at SPI Asset Management, said OPEC "could quickly compensate the losses from Iran supplies."
OPEC because of meet in June to talk about its production policy, and although Washington has put weight on the group to rose yield to make up for the shortfall from Iran, OPEC's de-facto leader Saudi Arabia said on Tuesday it had no instant plans to increase yield.
Ruecker said in spite of this OPEC's "petro-nations are unlikely to maintain their supply curbs" as U.S. pressure on them to increase yield would upsurge in the middle of surging gasoline prices.
Growing U.S. yield, which has now soared by around 2 million barrels per day (bpd) over the past year to a record 12.2 million bpd, may also ease market tightness.
"Activity is picking up and oil production is set to accelerate again," Ruecker said, adding that these factors will stop a prolonged oil price rally.
On Wednesday, analyst at Bernstein Energy said in a note that given the general supply and demand fundamentals, “Brent oil is back to our expected fair value of $70 per barrel.”