LONDON: Oil dropped for a second day on Wednesday as an industry report pointed to ample supplies in the United States and expectations of further interest rate hikes sparked concern over fuel demand and the economic outlook.

US crude stocks rose by a more than forecast 10.5 million barrels, according to market sources citing American Petroleum Institute (API) figures ahead of official Energy Information Administration (EIA) data at 1530 GMT.

“Simply put, the US is swimming in oil,” said Stephen Brennock of oil broker PVM.

Brent crude futures fell 46 cents, or 0.5%, to $85.12 a barrel by 1130 GMT and US West Texas Intermediate (WTI) crude dropped 60 cents, or 0.8%, to $78.46.

US inflation data and remarks from central bank officials that have been perceived as indications that interest rates will go higher for longer also weighed on the market.

US oil neutral in $78.57-$80.07 range

Federal Reserve officials on Tuesday said that the US central bank will need to maintain gradual increases to interest rates to beat inflation and suggested that price pressures driven by a hot jobs market could push borrowing costs higher than previously expected.

Also applying downward pressure on crude was the announcement this week that the United States would sell 26 million barrels of oil from the nation’s strategic reserve, which is already at its lowest level in about four decades.

Lending some support was Tuesday’s report from the Organization of the Petroleum Exporting Countries (OPEC), in which the oil producer group raised its projection for global oil demand growth and trimmed the non-OPEC supply outlook, pointing to a tighter market in 2023.

The International Energy Agency, in its report on Wednesday, also boosted its 2023 demand forecast.