Investing.com– Oil prices drifted lower Wednesday as indications of a large weekly build in U.S. inventories pointed to less tight markets, although prices remained elevated on concerns of a wider conflict in the Middle East. 

At 08:45 ET (12:45 GMT), fell 0.9% to $89.23 a barrel, while fell 0.8% to $84.69 a barrel. Both contracts were trading well below over five-month highs hit last week.

US inventories grow more than expected – API 

Both benchmarks have fallen back from recent highs after data from the showed on Tuesday that U.S crude inventories rose just over 4 million barrels in the week to April 12, much more than expectations for a build of 600,000 barrels.

The build came after a 3 million barrel rise in the prior week, and was largely driven by U.S. production remaining at record highs above 13 million barrels per day. Record-high production largely offset increasing refinery activity, driving concerns that U.S. oil markets were not as tight as initially thought. 

Still, a drop in gasoline inventories, of about 2.5 million barrels, indicated that demand in the world’s biggest fuel consumer was picking up with the approaching summer season.

The API data usually heralds a similar reading from official , which is due later in the day. 

Concerns that restrictive U.S. monetary policy could further stymie demand in the world’s largest economy this year also weighed, especially with economic growth already seen cooling. Mixed economic data from China added to these concerns. 

Middle East tensions remain in play

Crude prices had seen a stellar run-up over the past two weeks, climbing to five-month highs, as the prospect of a bigger conflict in the Middle East, especially between Iran and Israel, sparked bets of supply disruptions in the region. 

Markets were focused squarely on Israel’s response to a drone and missile attack by Iran over the weekend, with reports suggesting retaliation was imminent.

Bank of America Securities has drawn up three scenarios concerning events in the Middle East, and the likely reaction of crude to each.

So far, events over the weekend have resulted in limited casualties and damage thanks to Israel’s protective defensive shield, allowing some of the geopolitical risk premium in the oil market to reverse. Yet, in a limited Iran-Israel tit-for-tat military skirmish that does not lead to any disruptions in energy supplies, we believe oil prices would add back an incremental risk premium of about $5-10/bbl, analysts at the bank said, in a note dated April 16.

“In this scenario, oil would not likely stay long above $100/bbl as market participants would focus on the upcoming surplus in 2025,” BoA added.

An escalating conflict between these two countries that impacts energy infrastructure and lasts several months leading to major Iranian oil supply disruptions, hitting production by 1-1.5 million barrels a day, would likely lead to an initial $30-$40/bbl jump up in oil prices.

“Eventually, OPEC+ can increase production to partially offset some of the volume losses from Iran, but spare oil production capacity would drop sharply, so oil could settle at around $100-$130/bbl.” BoA said.

And finally, an expansive regional war that results in major oil disruptions in other parts of Middle East, whether due to infrastructure damage or refusal to navigate the strait, leading to oil market losses of 2 million barrels a day or more, would push prices up by $50 to $150/bbl.

“Should supply losses build up regionally, it may also prove difficult to access spare production capacity, so oil prices would likely settle above $150/bbl for several months. Even then, risks of global recession would quickly emerge, eventually creating downward pressure on prices in 2025,” the bank added.

(Ambar Warrick contributed to this item.)