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Oil falls 1.5% after US fuel inventories build

Stacked rigs are seen along with other idled oil drilling equipment in Dickinson, North Dakota, June 26, 2015.
Andrew Cullen | Reuters

Oil futures fell on Wednesday, extending a more than 3% drop in prices the previous session, after U.S. government data showed large builds in refined product stockpiles.

Brent crude futures slipped 74 cents to $63.61 a barrel. U.S West Texas Intermediate (WTI) crude futures fell 84 cents to $56.78 a barrel. Both benchmarks shed more than 3% on Tuesday.

While data on Wednesday from the U.S. Energy Information Administration showed a larger-than-expected drawdown in crude stockpiles last week, large builds in refined product inventories kept prices lower.

U.S. crude inventories fell 3.1 million barrels, EIA data showed, more than analysts' forecasts for a decrease of 2.7 million barrels.

Gasoline stocks rose 3.6 million barrels, compared with analysts' expectations in a Reuters poll for a 925,000-barrel drop. Distillate stockpiles grew by 5.7 million barrels, much more than expectations for a 613,000-barrel increase, the EIA data showed.

"The focus this time of year is gasoline, and that data point was squarely bearish," said John Kilduff, a partner at Again Capital Management in New York.

Some of the EIA data was affected by Storm Barry, which came ashore on Saturday in central Louisiana as a Category 1 hurricane. More than half of daily crude production in the Gulf of Mexico remained offline on Tuesday, the Bureau of Safety and Environmental Enforcement (BSEE) said, as most oil companies were re-staffing facilities to resume production.

The U.S. drilling regulator said 1.1 million barrels per day of oil, or 58% of the region's total, remained shut.

Oil prices slumped on Tuesday on increased hopes for a return of Iranian crude to the global oil market after U.S. President Donald Trump said progress had been made with Tehran, signaling tensions could ease in the Middle East.

However, Iran later denied it was willing to negotiate over its ballistic missile program, contradicting a claim by U.S. Secretary of State Mike Pompeo, and appearing to undercut Trump's statement.

"It is hard to believe that either the United States or the Iranian stance would change drastically, therefore yesterday's sell-off might turn out to be an excellent buying opportunity," PVM analysts wrote.

U.S. officials say they are unsure whether an oil tanker towed into Iranian waters was seized by Iran or rescued after facing mechanical faults as Tehran asserts, creating a mystery at sea at a time of high tension in the Gulf.