By Yuka Obayashi

TOKYO (Reuters) – Oil prices slid in early Asian trade on Thursday as a surprise build in U.S. stockpiles fuelled fears about slow demand from the top oil consumer, though worries a potential expansion of the Gaza war may disrupt Middle East supplies capped declines.

Brent crude oil futures fell 30 cents, or 0.4%, to $84.17 a barrel by 0028 GMT. U.S. West Texas Intermediate crude futures lost 32 cents, or 0.4%, to $80.58 per barrel.

Both benchmarks had settled slightly higher on Wednesday.

“An expected increase in U.S. inventories of crude oil and gasoline are weighing on the market due to fears of weakening demand,” said Tsuyoshi Ueno, senior economist at NLI Research Institute.

“But the market is in a tug-of-war situation, underpinned by the prospect that an escalation in the battle between Israel and Hezbollah may hinder supply,” he added.

The U.S. Energy Information Administration (EIA) reported a 3.6 million barrel jump in the country’s crude oil stocks last week, surprising analysts polled by Reuters who had expected a 2.9 million-barrel drawdown. [EIA/S]

U.S. gasoline stocks also rose by 2.7 million barrels, compared with analysts’ expectations for a 1 million-barrel draw.

Product supplied for motor gasoline, a proxy for demand, fell by about 417,000 barrels per day last week, to 8.97 million bpd. The four-week average for demand is about 2% under last year’s levels.

Ueno said the weak consumption despite the peak U.S. summer driving season had caused concern among traders.

In the Middle East, cross-border strains between Israel and Lebanon’s Hezbollah have been escalating in recent weeks, stoking fears of an all-out Israel-Hezbollah war that could draw in other regional powers, including major oil producer Iran.

Turkish President Tayyip Erdogan said his country stood in solidarity with Lebanon and called on regional countries’ support.

Meanwhile, Israeli forces pounded several areas across Gaza on Wednesday, and residents reported fierce fighting overnight in Rafah in the south of the Palestinian enclave.

(Reporting by Yuka Obayashi; Editing by Jamie Freed)

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