Oil slid more than $2 to below $90 on Wednesday, for the first time since mid-December, due to a large rise in crude stocks in the United States amid signs that slowing U.S. economic growth will erode fuel demand.
U.S. light, sweet crude for February delivery was lower, London Brent crude followed the move.
The U.S. government data showed crude oil stocks rose for the first time in nine weeks as imports increased.
The crude inventories in the world's top consumer increased by 4.3 million barrels to 287.1 million barrels in the week ending Jan. 11.
A poll of analysts had forecast a crude build of 600,000 barrels.
"The latest EIA data confirm the weakening trend in demand and will keep the market bearish in combination with recessionary fears that have hit all financial markets," said Tom Knight, trader with Truman Arnold.
U.S. crude futures have fallen from a record high above $100 hit earlier this month.
The International Energy Agency, adviser to industrialized countries, on Wednesday cut its 2008 global demand growth forecast by 130,000 barrels per day to 1.98 million bpd and said it may lower the figure further.
Mike Wittner, global head of oil research at Societe Generale, said fears over the world economy and relatively comfortable oil supply were likely to keep the downward pressure on oil prices.
"We have seen some negative studies on the macro economic front, and the IEA report this morning is moderately bearish," Wittner said.
"Looking forward, I think prices are going to fall further. Essentially, the market seems to be balanced in the first quarter this year."
While lowering its demand forecast, the Paris-based IEA pointed to a further decline in stocks in member countries of the Organization for Economic Co-operation and Development.
"The oil market has tightened. There's no doubt about that," said Lawrence Eagles, head of the IEA's Oil Industry and Markets division. "In terms of forward cover, we're at the lowest since November 2003."