Oil product stocks did rise, with distillate holdings, which include diesel and heating oil, climbing by 6.2 million barrels, while those for gasoline rose 1.3 million, according to the EIA data.
"We underestimated the degree to which New Delhi and Beijing would concede to Washington's demands", it said in a briefing note.
Light, sweet crude for October delivery dropped $1.78, or 2.5%, to $68.59 a barrel on the New York Mercantile Exchange, its worst day since August 15 after it closed at its highest level since July 20 a session earlier.
If Iran can get its oil to a friendly port, it could be blended with oil from elsewhere and resold, said Thijs Van de Graaf, assistant professor for worldwide politics at the University of Ghent. WTI's discount to Brent widened to as much as $10.38 a barrel, its deepest since June 20.
Unlike the 2012-2015 Western sanctions on Iran, this time around only the United States is slapping sanctions on Iran's economy and oil industry.
"Going forward, economic uncertainty, and hence questions surrounding global oil demand, coupled with geopolitical tensions, will need to be factored into maintaining a balanced market in the months to come", the report said.
He would not comment on commercial operations beyond saying "we will determine optimum crude in our own procurement plan".
While analysts and market participants are estimating how much Iranian crude oil will come off the market with the USA sanctions, signs have started to emerge that Iran's refined oil products and condensate flows are also being disrupted, according to an S&P Global Platts analysis, citing trade and market sources and trade flow data.
Greg McKenna, chief market strategist at futures brokerage AxiTrader said there has been "a divergence between Brent and WTI".
Brent crude, the global benchmark for oil, has been trading between $70 and $80 since April, only briefly rising above $80 in May and this week.
The report, however, incorporated Wells quote saying there was no "blanket waiver or country-specific waiver" from U.S. sanctions on trading with or investing in Iran or buying arms from Russian Federation.
Whether this price divergence will last is not clear. His plan is to twist Iran's arm by forcing it out of the oil market.
Meanwhile, U.S. prices could rise because the surge in demand may exacerbate logistical bottlenecks since the current domestic pipeline, port and storage infrastructure is not geared to handle exports on this scale. Most commodities are priced in U.S. dollars. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.