Front-month Brent crude oil futures LCOc1 were down 38 cents on the day at $74.27 a barrel by 1227 GMT, while USA crude futures CLc1 were down 67 cents at $68.50 a barrel.
"There is room for [prices in] the crude market to soften a bit more", says John Woods of JJ Woods Associates, adding that inventories could rise further as refineries head toward maintenance season after the summer driving season. The official selling price for Oman crude oil during July 2018, for the delivery month of September 2018, settled at US$73.17, lower by US$0.44 only compared with June trading prices.
American crude shipments to China are around 400,000 barrels per day (bpd), worth $1 billion a month at current prices.
Starting in November, the USA will also target Iran's petroleum sector.
Net U.S. crude imports fell last week by 358,000 barrels per day.
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"Past instances of El Niño have resulted in sharp drops in USA residential and commercial heating oil demand and prices", it said. A first set of U.S. sanctions snapped back into place earlier this week, but in November it will seek to choke off Iranian oil exports.
Crude has struggled to gain near $70 this month after retreating from the highs of June as the USA and China showed no sign of backing down from the trade fight, raising concerns over global economic growth.
Some analysts said that global crude supply losses could range from 600,000 to 1.5 million barrels per day due to the re-imposition of USA sanctions on Iran.
The heightened fear of a looming supply shock prompted Amrita Sen, chief oil analyst at Energy Aspects, to tell CNBC, "As we go more towards (the fourth quarter) ... that's when we really see the risk of prices going well into the $80s and potentially even into the $90s, but very critical is how much Iranian production we lose".
Iran is the third-largest producer among the members of the Organization of the Petroleum Exporting Countries (Opec). If more oil leaves the market than expected then the bulls will win the supply/demand battle.
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United States sanctions on Iran's energy sector are set to be re-imposed after a 180-day "wind-down period" ending on November 4. "The issue for the Chinese is that any tariff on United States exports (including) oil will likely hurt their economy disproportionately because they have to import", he said, noting that "US exports will find a home regardless of how the global supply deck is reshuffled".
Analysts in a Reuters poll had expected stocks to drop by 3.3 million barrels.
"Long-term contracts will be central to the US strategy", said Abhishek Kumar, a senior energy analyst at Interfax Energy in London.
Earlier on Wednesday, government data showed China's imports of crude oil in July rose slightly after falling in the previous two months. Saudi Arabia was thought to pump about 10.8 mmbbl or 11 mmbbl per day, said the source.
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