Oil retreated toward $38 a barrel after a U.S. industry report signaled a surprise jump in crude inventories, raising fresh concerns about excess supply.

Futures dropped 1.8% in New York, erasing almost all of their gains from the previous session. The American Petroleum Institute reported that stockpiles expanded by 8.42 million barrels last week, according to people familiar with the data. If confirmed by government figures on Wednesday, it would be the largest build since the end of April. The market shrugged off a report that armed men forced output to halt again at Libya’s biggest oil field.

Oil is still recovering from the virus-driven demand crash and swollen stockpiles that pushed prices below zero in April. While lockdowns have been relaxed in parts of the U.S., lifting consumption from its lows, there are still concerns that a second wave of infections and a rise of drilling could derail any rebound and expectations of inventory draws.

The U.S. inventory figure reported by API was “a monster” and places the staggering amount of oil in stockpiles back into focus, Jeffrey Halley, a senior market analyst for Asia Pacific at Oanda, said by phone. “The market has been ignoring U.S. oil inventories for a while. They should have been a bit concerned a lot sooner.”

Along with official crude stockpile data, investors are turning focus to a meeting by U.S. Federal Reserve policymakers Wednesday for signs of how plans to help the U.S. economy recover from its coronavirus-induced recession may impact demand for oil.

“It looks like we are in for a bit of consolidation until we get the Fed meeting out of the way,” Halley said.

Prices

West Texas Intermediate for July delivery fell 70 cents to $38.24 a barrel on the New York Mercantile Exchange as of 2:08 p.m. Singapore time
Brent for August settlement lost 1.4% to $40.62 on the ICE Futures Europe exchange after gaining 0.9% in the previous session
The prompt timespread for Brent expanded to 36 cents a barrel in contango, the widest since May 28
Supplies of U.S. distillates, which include diesel, rose by 4.27 million barrels last week, while stockpiles at the storage hub of Cushing, Oklahoma, fell by 2.29 million barrels, the API reported. The Energy Information Administration is expected to report nationwide crude inventories dropped by 1.85 million barrels, according to a Bloomberg survey.

The market is also watching how closely some members of the OPEC+ coalition stick to supply curbs after being called out for non-compliance when they were extended over the weekend. The head of Nigeria’s state oil company said the country will implement all of its production cuts agreed with OPEC+ by mid-July at the latest. Another laggard — Iraq — has also pledged to meet its commitments.

Meanwhile, the chaos engulfing another OPEC member continued, with the Sharara field in southwestern Libya stopping production after armed men entered the site Monday and told employees to end activities.

Though operations were briefly allowed to resume, according to people with knowledge of the situation, the group halted output again for the second time in a day, the Tripoli-based National Oil Corp. said on its Facebook page. The NOC has declared force majeure on loadings from the field.