Investing.com — Oil prices fell sharply Wednesday after industry data signaled an increase in U.S. oil inventories, while focus remained on diplomacy efforts by the U.S. to quell tensions in the Middle East. 

At 08:05 ET (12:05 GMT), fell 1.6% to $74.80 a barrel, while fell 1.7% to $70.52 a barrel. 

US inventories grew last week – API 

Data from the showed that U.S. oil inventories grew 1.643 million barrels in the past week, compared with expectations for a build of 0.7 million barrels. 

The , from the Energy Information Administration, is due later Wednesday, and could spur some concerns that U.S. fuel demand was cooling if it was to match these industry numbers.

Oil prices were also pressured by recent strength in the , as expectations of smaller interest rate cut by the Federal Reserve boosted the greenback to its strongest levels since early-August.

Crude, like many commodities, is denominated in dollars, and thus a stronger dollars makes it more expensive for foreign buyers. 

Middle East conflict provides support 

Crude prices gained some ground in the prior two sessions, paring last week’s losses of more than 7%., as tensions in the Middle East remained fraught after Israel said it had killed Hashem Safieddine, the heir apparent to the late Hezbollah Leader Hassan Nasarallah, who was killed last month by an Israeli strike. 

U.S. Secretary of State Antony Blinken has held extended discussions with Israeli leaders this week over a potential de-escalation in the conflict, but his diplomacy has so far reaped few results. 

“The uncertainty around how this plays out would leave speculators hesitant to be too short the market, something speculators had been before this most recent escalation, due to demand concerns and a bearish 2025 outlook,” said analysts at ING, in a note.

Oil to remain around $76/barrel in 2025 – Goldman Sachs 

Oil prices are expected to average around $76 a barrel in 2025, Goldman Sachs analysts said in a recent note, with markets set to see a moderate crude surplus and spare capacity in major producers to offset any potential supply disruptions.

The investment bank said the risk premium for crude from tensions in the Middle East was limited, given that Iran-Israel tensions had so far not impacted oil supplies from the region. 

Goldman analysts also noted that major producers in the Organization of Petroleum Exporting Countries, as well as their allies, had sufficient spare capacity. The cartel last week cut its oil demand forecast for 2024 and 2025, and is set to begin increasing production later this year.

(Ambar Warrick contributed to this article.)