LONDON, Oct 23 Reuters Oil prices fell on Wednesday after industry data showed U.S. crude inventories swelled more than expected, though futures were still up about 2 this week as traders factored in continuing conflict in the Middle East.

Brent crude futures dropped 1.14, or 1.5, to 74.90 a barrel by 1255 GMT. U.S. West Texas Intermediate crude futures shed 1.10, or 1.53, to 70.64.

Oil had settled higher in the previous two sessions, paring last week39;s losses of more than 7. Those declines stemmed from worries about Chinese demand and some easing concerns around Middle East oil supply being disrupted, but investor sentiment appeared to reverse at the start of this week.

Two days of rallies eat at much of last week39;s 7 loss due to market perceptions of how the pieces of the war puzzle are falling into a timely picture in which Israel finally strikes directly at Iran, said PVM analyst John Evans.

Wednesday39;s price drop came after data showed U.S. crude stocks rose by 1.64 million barrels last week, according to market sources citing American Petroleum Institute figures on Tuesday. Analysts polled by Reuters had expected an increase of 300,000 barrels.

Official U.S. government oil inventory data is due on Wednesday at 1030 a.m. EDT 1430 GMT.

But the inventories impact on prices was countered somewhat by persistent concerns over potential oil supply risk from conflict in the Middle East.

The market continues to wait for Israel39;s response to Iran39;s missile…