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By Arathy Somasekhar
HOUSTON (Reuters) - Oil prices settled 1% lower on Wednesday after U.S. crude inventories rose unexpectedly and as worries eased slightly that a wider Middle East conflict could threaten supplies from one of the world's major regions for crude production.
Brent crude futures closed 93 cents lower, or 1.15%, at $79.76 a barrel. U.S. West Texas Intermediate crude futures fell $1.37, or 1.8%, to $76.98 per barrel.
U.S. crude inventories rose by 1.4 million barrels, compared with estimates for a 2.2 million barrel drop, data from the U.S. Energy Information Administration showed. The build was the first after six straight weeks of draws.
"That six week draw was a pretty impressive but that's in the rearview mirror. The fact that we snapped the streak should weigh on prices a little bit," said Robert Yawger, director of energy futures at Mizuho in New York.
Gasoline and distillate inventories fell more than expected.
American Petroleum Institute figures on Tuesday had pointed to a 5.21 million barrel drop last week.
Brent had risen more than 3% on Monday to cap a five-day run of gains, closing at $82.30 a barrel, after hitting a seven-month low of $76.30 at the beginning of last week.
Iran had vowed a severe response to the killing of the leader of Hamas late last month. Three senior Iranian officials have said that only a ceasefire deal in Gaza would hold Iran back from direct retaliation against Israel for the assassination.
Israel has neither confirmed nor denied its involvement, but it is fighting in Gaza against Hamas after the group attacked Israel in October. To counter Iran, the United States Navy has deployed warships and a submarine to the Middle East.
"Tighter supplies (from geopolitical tensions) are well priced in," said Dennis Kissler, senior vice president of trading at BOK Financial.
DEMAND WOES
Also hindering oil price gains, the International Energy Agency on Tuesday trimmed its 2025 estimate for oil demand growth, citing the impact of a weakened Chinese economy on consumption. That came after OPEC cut expected demand for 2024 for similar reasons.
A recent string of dismal indicators have dulled expectations for July economic performance in China, feeding worries about the world's second-largest economy.
Globally, jet fuel demand is also poised to soften as a slowdown in consumer spending hits travel budgets, a shift that could weigh on oil prices in coming months.
"Summer driving season is having its last hurrah, with schools returning and Labor Day fast approaching." said Kpler analyst Matt Smith.
U.S. consumer prices rose moderately in July and the annual increase in inflation slowed to below 3% for the first time since early 2021, strengthening expectations the Federal Reserve will cut interest rates next month.
Lower interest rates can boost economic activity and oil demand.
British consumer price inflation picked up less than expected in July, boosting rate cut bets.
Providing a floor for crude prices, Libya's Waha oil company's production was reduced by 115,000 barrels per day due to maintenance on the pipeline pumping oil from the Waha field to Es Sider port, a company source told Reuters on Wednesday.
(Reporting by Arathy Somasekhar in Houston, Paul Carsten in London, Laila Kearney in New York and Emily Chow in Singapore; Additional reporting by Arunima Kumar in Bengaluru; Editing by Emelia Sithole-Matarise, David Holmes and David Gregorio)
