As storage on land tightened in recent weeks, fuel prices weakened, prompting traders to store diesel on tankers at sea for later delivery. Even if crude output tapers, some say the glut may continue to pressure prices.
"Unless crude imports fall totally out of bed, there's ample oil in the tanks, and the headline numbers for crude won't be as bearish as the total numbers," said Kyle Cooper, oil markets consultant for New York-based broker ION Energy.
For distillate inventories including diesel, API reported a surprise draw of 484,000 barrels. It also said there was an unexpected gasoline build of 805,000 barrels.
"We expect fresh lows by tomorrow that should force out some recently acquired speculative longs that have been entering the market amidst the price consolidation of the past eight to nine sessions," said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.
Brent crude settled down 30 cents, or 0.6 percent, at $46.66 barrel. It fell 1.4 percent on Monday.
U.S. crude West Texas Intermediate (WTI) crude fell 59 cents, or 1.3 percent, to settle at $44.65. WTI lost 1.6 percent in the previous session. It marks the lowest settle since May 9, when oil settled at $43.44.
Brent's premium to WTI reached its highest since the end of April, raising the export potential for U.S. crude.
Both benchmarks were little changed after the API data.
Also weighing on oil was the dollar's rally to a four-month high, making greenback-denominated oil less affordable for holders of the euro and other currencies.
Earlier in the session, a protest over wages that shut the eastern Libyan oil terminal of Hariga and forced a suspension of 100,000 barrels per day of crude production helped the market limit some losses.
The market's attention has gravitated more toward the glut in fuels. Weak prices have prompted traders to store diesel on tankers at sea for later delivery, as storage on land tightens. Even if crude output tapers, some traders say sustained price recovery will be hard due to the glut.