Oil falls to 7-week low on surprise US storage build, Middle East hopes

By Scott DiSavino

NEW YORK (Reuters) -Oil prices fell about 3% to a seven-week low on Wednesday on a surprise build in U.S. crude stocks, the prospect of a Middle East ceasefire agreement and as hopes faded for near-term U.S. interest rate cuts that could boost oil demand.

Brent <LCOc1> futures for July delivery fell $2.89, or 3.4%, from where the July contract closed on Tuesday to settle at $83.44 a barrel on Wednesday.

That was down about 5.0% from where the Brent June contract closed on Tuesday when it was still the front-month, which would be the front-month's biggest daily percentage decline since October 2023.

U.S. West Texas Intermediate (WTI) crude fell $2.93, or 3.6%, to settle at $79.00 a barrel.

Those were the lowest closes for both benchmarks since March 12 and left both in technically oversold territory for the first time since December 2023.

In other energy markets, U.S. diesel futures closed at their lowest since July 2023, while U.S. gasoline settled at a seven-week low.

The U.S. Energy Information Administration (EIA) said energy firms added a surprise 7.3 million barrels of crude into stockpiles during the week ended April 26.

That compares with the 1.1 million barrel withdrawal analysts forecast in a Reuters poll and the 4.9 million barrel increase shown in data from the American Petroleum Institute (API), an industry group. [EIA/S] [EIA/S]

"The crude build is a big one. At this time of year, we should be drawing down on crude oil as more barrels go through the refinery," Bob Yawger, director of energy futures at Mizuho, told Reuters.

EIA also reported a surprise 0.3-million barrel build in gasoline inventories. Analysts expected gasoline stocks would decline by 1.1 million barrels.

In the Middle East, expectations grew that a ceasefire agreement between Israel and Hamas could be in sight following a renewed push by the U.S. and Egypt. Still, Israeli Prime Minister Benjamin Netanyahu has vowed to go ahead with a long-promised assault on the southern Gaza city of Rafah.

"The crude market is weighed down by continued hopes for a ceasefire," Ole Hansen of Saxo Bank said.

In other news, the U.S. accused Russia of violating the international chemical weapons ban by deploying the choking agent chloropicrin against Ukrainian troops and using riot control agents "as a method of warfare" in Ukraine.

U.S. INTEREST RATES

The U.S. Federal Reserve held interest rates steady and signaled it is still leaning towards eventual reductions in borrowing costs, but put a red flag on recent disappointing inflation readings.

The Fed's latest policy statement did note that "inflation has eased" but any delay in rate cuts could slow economic growth and dampen demand for oil.

(Reporting by Scott DiSavino in New York and Alex Lawler in London; additional reporting by Deep Vakil in Bengaluru, Laila Kearney in New York and Sudarshan Varadhan in Singapore; editing by Jason Neely, Mark Potter, Will Dunham and Franklin Paul)