The industry-funded American Petroleum Institute was said to report stockpiles fell by 5.6 million barrels while fuel supplies gained.
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Oil has slumped from above $115 in June 2014 as shale oil from the United States has flooded the market, while falling prices have prompted some producers to pump even harder to compensate for lower revenues and to keep market share.
“The current ramping up in tensions between Saudi Arabia and Iran only further confirms our view that Saudi Arabia is unlikely to cut its output to help Iran regain market share”, Wood Mackenzie said.
Concerns about demand from China has also hit crude oil prices.
On top of that, the kingdom, which has been overtaken in production by the United States, has not given a second’s thought to cutting its output. Output is not far below July’s 31.88 million bpd, the highest since Reuters records began in 1997.
A proposal from Opec, which controls about 40 per cent of the world supply, to non-Opec producers such as Russian Federation and Mexico to curtail production never found momentum among the non-Opec suppliers, bringing oversupply to between 1 and 2 million barrels per day.
The question now is at what point will the market rebalance and prices start to climb higher, with either production declining or demand rising.
West Texas Intermediate for February delivery lost as much as 22 cents to $35.75 a barrel on the New York Mercantile Exchange and was at $35.80 at 7:47 a.m. London time. Brent traded just 14 cents higher than lows not seen since the financial crisis of 2008 when crude was $36.20 per barrel.
The brent crude oil price has crashed to its lowest level in 11 years as traders fretted about global overproduction.
Meanwhile, the lifting of sanctions on Iran in line with a nuclear agreement is expected to provide the biggest increase in supply of 2016.
Elsewhere in the energy complex, natural gas for February fell 0.2% to $2.32 per million British thermal unit, while gasoline for the same month sank 3.6% to $1.21 a gallon.
This has influenced price makers more than the growing standoff between Saudi and Iran over the recent execution of a Shia Muslim cleric and the terrorist attacks on Libyan oil storage tanks.
Still, Opec has survived previous conflicts among its members, notably during the 1980-88 war between Iran and Iraq.
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Oil prices continued lower on Wednesday, with the Brent benchmark sliding to an 11-year low on fresh signs of a weakening Chinese economy and escalating tensions in the Middle East, both of which could add to the global glut of crude.
