Brent crude oil dropped to $103 per barrel on Wednesday after data showing an unexpected jump in U.S. gasoline stockpiles sparked worries that summer demand in the world's top oil consumer might be weaker than expected.
The U.S. government's Energy Information Administration said gasoline inventories rose by 3 million barrels last week, suggesting the U.S. domestic fuel market was well supplied for the peak driving season.
Crude inventories fell by 338,000 barrels, the EIA report showed. Analysts had expected crude stocks to drop 800,000 barrels and gasoline stocks to remain unchanged from a week ago.
U.S. gasoline fell 2 cents to $2.82 a gallon a after hitting a session low of $2.79. Gasoline has slid nearly 4 percent since May 17, when it touched $2.93, its highest in a month.
"Gasoline remains the focus of the complex as we head into peak demand season," John Kilduff, partner at Again Capital in New York.
"Concerns over inventories had produced the recent rally, and gasoline's strength spilled over into the rest of the complex."
Wall Street stocks jumped as much as one percent, then pared gains after Federal Reserve Chairman Ben Bernanke, in testimony to Congress, said that if economic improvement continued, "We could in the next few meetings take a step down in our pace" of bond purchases.
Markets were further unnerved after the Fed's minutes stated that "a number of participants" on the Federal Open Markets Committee this month favored slowing the Fed's efforts to maintain record-low long-term interest rates as early as summer — if the economy showed strong and sustained growth.
But those officials appeared at odds over what evidence would demonstrate such gains.
The dollar rose to a 4-1/2-year high against the yen after Bernanke cited the risks of holding interest rates too low for too long. That jump reversed an earlier decline when he said it was too soon to remove existing stimulus measures.
The U.S. central bank's three quantitative easing (QE) programs have released hundreds of billions of dollars into money markets over the last four years, boosting many commodities including oil. Any sign the easing could end would be bearish for many assets.
Investors are awaiting the release at 2:00 p.m. EDT (1800 GMT) of minutes of the last Federal Reserve meeting, which economists also expect to give further details of how it will eventually manage the exit from ultra-easy policy.
Investors will also watch on Thursday for May's initial purchasing manager's indexes for signs of economic revival in the three key consumer regions: China, the United States and the euro zone. Reuters surveys suggest they may show a slight pickup from April but not enough to dispel fears of a sluggish outlook.