Brent crude futures fell 73 cents, or 0.67%, to $108.02 a barrel by 0450 GMT, while U.S. West Texas Intermediate (WTI) crude declined $1.10, or 1.04%, to $104.73 a barrel.
The decline came a day after both benchmarks gained more than $3 and reached their highest levels since May 19. Tuesday’s rally was driven largely by concerns over physical oil supplies after Saudi Arabia suspended some operations at its Yanbu export facilities and reduced shipments to Europe.
The latest pressure on prices emerged after U.S. crude, gasoline and distillate inventories all increased last week, according to data from the American Petroleum Institute (API), cited by market sources.
U.S. crude inventories rose by 7.1 million barrels in the week ended September 11, a sharp reversal from expectations for a decline of about 1.6 million barrels, according to a Reuters poll of analysts.
The unexpected increase in stockpiles raised concerns about near-term demand and placed renewed pressure on crude prices. Gasoline and diesel inventories also recorded unexpected gains, adding to the bearish sentiment in the market.
However, analysts said the rise in U.S. inventories does not necessarily signal a loosening of the broader global oil market.
"API's data showed unexpected builds in gasoline and diesel inventories have weighed on prices, but regional stock increases do not change the underlying tightness in the global crude market," Haitong Futures said in a note.
The competing forces of higher U.S. inventories and disruptions to Middle Eastern supplies have left traders weighing developments on both sides of the global oil market.
Despite the inventory increase, oil prices remained relatively resilient as attention continued to focus on physical supply disruptions, according to Priyanka Sachdeva, head of market insights at Phillip Nova.
"The bigger concern remains the disruption to Saudi Arabia's East-West pipeline and Yanbu export infrastructure, following attacks on Saudi energy facilities," she said.
Saudi Supply Disruptions Deepen
Supply concerns intensified after attacks damaged key Saudi energy infrastructure. Oil loadings at the country's Yanbu port were suspended after Saudi Arabia shut its East-West pipeline following an attack by Yemen's Iran-aligned Houthis on Friday, according to sources cited on Tuesday.
The East-West pipeline is strategically important because it provides Saudi Arabia with an alternative route for transporting crude to the Red Sea, allowing shipments to avoid the Strait of Hormuz and reach export terminals on the country's western coast.
The disruption has raised concerns among traders about the availability of Saudi crude and refined products, particularly as global markets remain sensitive to any interruption involving one of the world's largest oil exporters.
Saudi Arabia has responded by seeking alternative ways to supply customers in Asia.
People familiar with the matter said on Wednesday that the kingdom was offering additional crude loadings to Asian refiners through ship-to-ship transfers off Oman's Sohar port. The arrangement follows drone attacks that damaged the key pipeline linking Saudi oil fields to the Red Sea.
The developments have added another layer of uncertainty to an already fragile oil market, with traders closely watching both the recovery of Saudi infrastructure and the ability of the kingdom to maintain export flows through alternative routes.
Hormuz Traffic Falls
Concerns have also extended beyond Saudi Arabia to the wider Middle East shipping network.
Visible vessel transits through the Strait of Hormuz fell to four on Tuesday, down from seven a day earlier, according to preliminary shipping data released on Wednesday. The figure was well below the waterway's 10-day average of 18 transits.
The decline is significant because the Strait of Hormuz is one of the world's most important energy corridors. Before the U.S.-Israeli war on Iran began, the waterway handled roughly a fifth of global oil and liquefied natural gas supplies.
Reduced vessel traffic has added to concerns about the security of energy shipments from the Gulf, particularly following an intensification of attacks across the region.
European fuel markets have already reflected the tightening supply conditions. European diesel futures climbed to a record high on Tuesday, underscoring concerns over the availability of refined petroleum products as disruptions in the Middle East constrain crude and fuel flows.
For oil traders, the market is therefore being pulled in opposing directions. Higher-than-expected U.S. inventories are weighing on prices by pointing to increased domestic supply, while disruptions to Saudi infrastructure and reduced shipping activity through the Strait of Hormuz are keeping supply risks firmly in focus.
The balance between those forces is likely to remain central to price movements as traders assess whether Middle Eastern disruptions will be temporary or result in a more sustained reduction in global crude and refined-product supplies.