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Oil futures fell more than 1 per cent on Wednesday, extending a more than 3 per cent drop in prices the previous session, after U.S. government data showed large builds in refined product stockpiles.

Brent crude futures were down 69 cents, or 1.1 per cent, to settle at $63.66 a barrel. U.S West Texas Intermediate (WTI) crude futures fell 84 cents, or 1.5 per cent, to settle at $56.78 a barrel. Both benchmarks shed more than 3 per cent on Tuesday.

While data on Wednesday from the U.S. Energy Information Administration showed a larger-than-expected drawdown in crude stockpiles last week, large builds in refined product inventories kept prices lower.

U.S. crude inventories fell 3.1 million barrels, EIA data showed, more than analysts’ forecasts for a decrease of 2.7 million barrels.

Gasoline stocks rose 3.6 million barrels, compared with analysts’ expectations in a Reuters poll for a 925,000-barrel drop. Distillate stockpiles grew by 5.7 million barrels, much more than expectations for a 613,000-barrel increase, the EIA data showed.

“Gasoline and distillate stocks increased strongly, which adds a bearish tone to the report,” said Carsten Fritsch, oil analyst at Commerzbank. “The fact that oil product stocks increased sharply is a reflection of weaker demand.”

Crude production was disrupted last week by Storm Barry, which came ashore on Saturday in central Louisiana as a Category 1 hurricane. More than half of daily crude production in the Gulf of Mexico remained offline on Tuesday, the Bureau of Safety and Environmental Enforcement (BSEE) said, as most oil companies were restaffing facilities to resume production.

The U.S. drilling regulator said 1.1 million barrels per day of oil, or 58 per cent of the region’s total, remained shut.

Oil prices slumped on Tuesday on increased hopes for a return of Iranian crude to the global oil market after U.S. President Donald Trump said progress had been made with Tehran, signalling tensions could ease in the Middle East.

However, Iran later denied it was willing to negotiate over its ballistic missile program, however, appearing to undercut Trump’s statement.

“It is hard to believe that either the United States or the Iranian stance would change drastically, therefore yesterday’s sell-off might turn out to be an excellent buying opportunity,” PVM analysts wrote.

U.S. officials say they are unsure whether an oil tanker towed into Iranian waters was seized by Iran or rescued after facing mechanical faults as Tehran asserts, sowing confusion at a time of high tension in the Gulf.

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