Brent crude futures settled at $70.99 a barrel, dropping $1.19, 1.7%. U.S. West Texas Intermediate (WTI) crude futures ended $1.71, or 2.7%, lower at $61.42 a barrel.
U.S. crude inventories swelled by 4.7 million barrels in the latest week to their highest since July 2017 at 476.8 million barrels, the U.S. Energy Information Administration reported. Analysts polled by Reuters had predicted a decrease of 599,000 barrels.
"It's at the extreme end of the range of possibilities for a bearish report," said Bob Yawger, director of futures at Mizuho in New York. "It's about as bad as it could have been considering the fact that driving season is so close."
Gasoline stocks posted a surprise build as well, rising by 3.7 million barrels compared with analysts' expectations for an 816,000-barrel drop, despite steady gasoline demand heading into peak driving season.
"Refiners are running at a subdued pace for this time of year," which contributed to the builds, said John Kilduff, a partner at Again Capital LLC in New York.
The prospect of a long-term tariff war between China and the United States also pressured prices. Additional talks between top officials have not been scheduled since the last round ended in a stalemate on May 10, when U.S. President Donald Trump imposed the higher levies on Chinese goods.
U.S. Treasury Secretary Steven Mnuchin said Washington is at least a month away from enacting its next round of tariffs on Chinese imports as it studies the impact on consumers.
The conflict is weighing on economic growth forecasts and oil demand predictions. The Organization for Economic Co-Operation and Development (OECD) on Tuesday revised down its global growth forecast for the year.
A slump in equities, which oil futures often follow, deepened the fall in oil prices. [.N]
Growing tensions between the United States and Iran, which could lead to supply disruptions, helped limit losses.
The prospect that the Organization of the Petroleum Exporting Countries and its allies will continue its output cut pact later in the year was also supportive.
Saudi Arabia, OPEC's de facto leader, said it was committed to a balanced and sustainable oil market.
U.S. bank Morgan Stanley said it expected Brent prices to trade in a $75-$80 per barrel range in the second-half of this year, pushed up by tight supply and demand fundamentals.
(Additional reporting by Stephanie Kelly in New York, Shadia Nasralla in London, Henning Gloystein in SINGAPORE and Aaron Sheldrick in TOKYO; Editing by Marguerita Choy and Phil Berlowitz)
By Laila Kearney