Analysts had expected an decrease of about 1.367 million barrels for this week.
The API reported a drop of 1.077 million barrels in the previous week.
Oil prices advanced on Wednesday amid concerns over the supply side.
The West Texas Intermediate (WTI) for February delivery added 1.53 U.S. dollars, or 1.8 percent, to settle at 86.96 dollars a barrel on the New York Mercantile Exchange. Brent crude for March delivery increased 0.93 dollar, or 1.1 percent, to close at 88.44 dollars a barrel on the London ICE Futures Exchange.
Both WTI and Brent logged their highest settlements since October 2014, based on the front-month contracts.
The two crude benchmarks reaped even larger gains earlier in the session, triggered by news of an explosion at an oil pipeline that transports up to 450,000 barrels of crude oil per day from the oilfields in northern Iraq to the Mediterranean port of Ceyhan in Turkey.
"The pattern of recent weeks is being repeated, in other words: news about supply outages pushes prices up significantly, yet prices do not drop back to their previous level once the problems have been resolved," Carsten Fritsch, energy analyst at Commerzbank Research, said Wednesday in a note.
Traders also parsed a closely-watched report released Wednesday by the International Energy Agency (IEA).
In its monthly oil market report, the IEA raised its demand estimates by 200,000 barrels a day for both 2021 and 2022, to reflect clear signs that impact on economic activity and oil demand from the omicron variant remained "relatively subdued."