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US oil settles down $1.99, or 3.3%, at $58.94 a barrel

Oil fell more than 3 percent on Thursday, wiping out recent gains, as euphoria from the first U.S. inventory drawdown in months faded and focus returned to oversupplies in crude and gasoline.

A stronger dollar also weighed on the energy complex, making raw materials became less affordable to holders of the euro and other currencies.

U.S. crude futures closed down $1.99, or 3.3 percent, at $58.94 a barrel. The contract had rallied more than $2 to a high of $62.58 in the previous session.

Brent futures were down $2.40 a barrel to $65.30, wiping out a week's worth of gains. Meanwhile, gasoline futures were down 49 cents, their most in 16 days, to trade below $2 a barrel.

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U.S. crude inventories fell almost 4 million barrels last week, their first weekly decline since January, government data showed on Wednesday. But crude stockpiles still stood at a discouragingly-high 487 million barrels. While weekly demand for gasoline was higher, stocks of the fuel also rose despite the approach of the peak U.S. driving season.

"There is some disappointment out there that the fundamentals for gasoline and oil products aren't improving as quickly as some people would like, to provide support for the broader rally in crude that we've been seeing," said Carl Larry, director of business Development for oila and gas at Frost & Sullivan.

Stronger-than-expected demand growth and a slowdown in U.S. crude supply has boosted oil prices by 50 percent from a six-year low hit in January, despite ample supply.

Physical markets, however, are showing a weaker underbelly, crude traders said, pointing to tens of millions of West African, Azeri and North Sea barrels struggling to find buyers.

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"While the latest draw and the recent slowdown in weekly builds in crude stocks have been seen as positive for the oil price, crude stocks remain exceedingly high," said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas.

The world's biggest oil exporters in OPEC meet in Vienna next month but are not expected to adjust production.

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A senior OPEC delegate indicated on Wednesday the group would stick to a strategy of pursuing market share.

The delegate told Reuters the cartel wanted "to bring major non-OPEC producers to the table" to help balance the market.