The 6.3 million barrel increase was far more than analysts had expected and renewed worries in the market that supplies of oil are still outstripping demand.
Oil had rallied 19 per cent over the previous four days as traders hoped that low prices would force more energy companies to curtail exploration and production.
U.S. benchmark crude dropped $4.60, or 8.7 per cent, to settle Wednesday at $48.45 a barrel in New York.
The price of oil reached its highest point of the year Tuesday, leading to speculation that a long-running collapse was abating. The price has been falling sharply since last June, when it peaked at $107 a barrel.
Brent crude, a benchmark for international oils used by many U.S. refineries, declined $3.75, or 6.5 per cent, to close at $54.16 a barrel in London.
In other futures trading on the NYMEX:
— Wholesale gasoline fell 12 cents to $1.482 a gallon.
— Heating oil fell 8 cents to close at $1.767 a gallon.
— Natural gas fell 9.2 cents to close at $2.662 per 1,000 cubic feet.Suggest a correction