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Surprisingly bearish inventory number crushes oil

Eddie Seal | Bloomberg | Getty Images

A significant and surprising build in crude inventories Wednesday added more pressure to oil prices, with West Texas Intermediate futures under the key $100 level.

The U.S. Energy Information Administration said that crude oil supplies for the week ended March 7 rose by 6.2 million barrels, nearly three times what the market was expecting. In its survey and analysis, Platts called for a 2.3 million barrel build.

Tim Evans, energy futures specialist at Citigroup, says this number came in well above even the high end of estimates, which were at 4 million barrels, and surpassed last year's report for the same week (3.6) and the five-year average (4.5).

Crude prices were already trading lower ahead of the report on investor concerns over China's economy and its growth potential, after a recent string of negative data from the world's second largest oil consumer.

(Read more: Pimco raises US economic outlook, says China growth to slow)

Traders said an additional factor impacting price volatility was an announcement from the Department of Energy that it authorized a test drawdown and sale of up to 5 million barrels of sour crude oil from the Strategic Petroleum Reserve.

Traders speculated that the test could be a proactive step by the administration over geopolitical events in Russia and Ukraine.

However in a statement, the DOE said the release is part of routine evaluation and that recent dramatic increases in domestic crude oil production have resulted in significant changes to the system that need to be assessed.

"By law, the Department of Energy is required to conduct continual evaluation of the Strategic Petroleum Reserve system's drawdown and sales procedures," said DOE spokesman Bill Gibbons.

Build in crude to 6.2 million barrels

Many traders had been expecting a pullback in oil, but it got a temporary lift on geopolitical concerns about Russia's seizure of Crimea.

Even with the jump in oil inventories, there was another sizable drawdown in distillate stocks, which fell by 5.2 million barrels, well above the expected 1.6 million barrel decline

(Watch: Go inside a Gulf oil rig with Cramer)

"Oil seems on pace to test the recent low end of the old range at the $93 level after squeezing every short out of the market as it spring-boarded above $100 on its way to the recent print of $105," said Jeff Kilburg, founder and CEO of KKM Financial. "With respect to the build in inventories we saw today, it doesn't surprise. Despite the stock market's elevated levels, demand is waning."

Kilburg remains skeptical and concerned, however about the impact that geopolitics could have on oil prices.

"Is this the administration possibly tipping its hand on its next moves towards Russia in regards to [the] Ukraine occupation. If not, this has to be the oddest time to run a test, and why 5 million barrels? How about 1 million tops on the 'test'? Traders that I talk to, as well as myself included, always believe that when there is smoke ... there is fire."

—By CNBC's Jackie DeAngelis.

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