Oil prices dropped nearly 2% on Wednesday after hitting a multi-year highs, as an unexpected rise in U.S. crude inventories prompted buyers to take a breather after recent torrid gains.
The latest surge in the crude prices had been underpinned by the refusal of the Organization of the Petroleum Exporting Countries and allies to boost output and concern about tight energy supplies globally.
On Monday, OPEC, Russia and other allies, known as OPEC+, chose to stay with a plan to increase output gradually and not boost it further as the United States and other consumer nations have been urging.
"An energy crisis is unfolding with winter in the northern hemisphere still to begin, and sets the stage for even higher oil prices," said Stephen Brennock of oil broker PVM.
Brent crude hit $83.47 a barrel, its highest since October 2018, but settled 1.79% lower at $81.08 per barrel.
U.S. crude climbed to $79.78, its highest since November 2014, before settling 1.9% lower at $77.43 per barrel.
U.S. crude inventories rose by 2.3 million barrels last week, against expectations for a modest dip of 418,000 barrels, the U.S. Energy Department said.
Notably, U.S. production increased to 11.3 million barrels per day, recovering from storm-related shut-ins more than a month ago to rebound near pandemic-level highs but still far from the 13-million bpd record set in 2019.
With shale companies constraining drilling to concentrate on investor returns, U.S. output has not been able to offset OPEC's efforts to restrict exports.
"We have largely recovered from Hurricane Ida in crude production. As OPEC+ remains diligent in the way they're managing the oil market that might leave the door open for U.S. crude producers," said Tony Headrick, energy market analyst at CHS Hedging.
The price of global benchmark Brent has surged more than 50% this year, adding to inflationary pressure that could slow recovery from the COVID-19 pandemic. Natural gas has surged to a record peak in Europe and coal prices from major exporters have also hit all-time highs.
Jeffrey Halley, analyst at brokerage OANDA, said both crude contracts looked overbought based on a widely followed technical indicator, the relative strength index.
"That may signal some daily pullbacks this week but does not change the underlying bullish case for oil," he said.