Oil prices fell 4.6 percent on Wednesday after U.S. government data showed a 10th straight week in crude builds, but traders cautioned of volatility ahead of this week's OPEC meeting from suggestions of any production cuts.
Crude also hit session lows, breaking below $40 a barrel, after the release of the Fed's Beige Book.
The dollar's surge to 12½-year highs after pro-rate hike comments by U.S. Federal Reserve Chairperson Janet Yellen also weighed on oil and other dollar-denominated commodities, as it makes them less affordable to those holding the euro and other currencies.
U.S. crude oil inventories rose 1.2 million barrels last week, for a tenth straight week on higher imports and in spite of a jump in refining rates that also boosted stocks of gasoline and distillates, data from the Energy Information Administration (EIA) showed.
"It is another data point pointing to a continued glut in the U.S. markets for oil as production declines remain stubborn even with oil prices hovering at current levels for a significant amount of time now," Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland said.
Inventories at the Cushing, Oklahoma, delivery hub for U.S. crude futures accounted for a third of the build, rising 428,000 barrels, the EIA reported.
was down $1.85, or 4.16 percent, at $42.58 a barrel by 2:36 p.m. EDT, falling for a fifth consecutive session.
U.S. crude settled $1.91 lower, or 4.6 percent, at $39.94 a barrel.
Both benchmarks had raced into positive territory earlier on Wednesday, reacting to a headline from Tehran's oil ministry news agency Shana that a majority of OPEC members agree on output cuts.
But prices fell back rapidly as the report also said Saudi Arabia, the kingpin in the Organization of the Petroleum Exporting Countries, and other Persian Gulf Arab member countries of OPEC were not agreeable to the reductions.
In spite a global supply glut, most traders expect OPEC at its Friday meeting in Vienna to endorse its decision from last year to pump oil vigorously to protect its market share from non-members like United States and Russia.
Only a few OPEC members, such as Venezuela and Iran, are hoping for output cuts to stabilize crude prices which have tumbled from highs above $100 a barrel in June 2014.
"The market is vulnerable to short covering spikes if anything unexpected on OPEC comes out," said Peter Donovan, broker at Liquidity Energy in New York.
Beyond OPEC's meeting, oil traders remained focused on growing stockpiles and high production.
Russia continued extracting oil at a post-Soviet record of 10.78 million barrels a day (bpd) in November despite low oil prices, Energy Ministry data showed on Wednesday.
Low oil prices in combination with high debt levels are putting heavy pressure on corporate energy earnings.
"The global oil and gas sector is heavily indebted, with upstream companies holding about $1.1 trillion in dollar-denominated corporate bonds and loans," BMI Research said.
"While the current debt load does not pose a systemic threat to the industry, a pullback in low-cost financing will be a necessary precursor to the broader rebalancing of the physical oil market."
Many analysts are skeptical of oil prices recovering into 2016.
"We maintain our bearish or sideway move in oil prices in the next 2-3 months as things haven't really changed fundamentally, despite data showing a decline in stocks builds by end of next year," Natixis oil analyst Abhishek Deshpande told the Reuters Global Oil Forum.