Oil fell below $70 a barrel for the first time since August last year after the US government data showed larger than expected increases in crude and petrol inventories and weaker product demand.
Crude oil inventories in the United States rose 5.6 million barrels last week, the government data showed, compared with analysts' expectation of a 1.9 million barrel increase.
Petrol inventories rose 7.0 million barrels against analysts' forecast of a 2.9 million barrel increase.
"It is decidedly bearish. It pushed crude below $70 a barrel, and the 7 million gasoline build was just a whopper," said Jim Ritterbusch, president of Ritterbusch & Associates.
US crude fell more than $5 at one point, sliding to as low as $69.15, the cheapest price since August last year. It was trading $3.10 lower at $71.44 by 1622 GMT.
London Brent crude also fell more than $5 to $65.70, the lowest since May.
US crude has fallen from its record highs above $147 hit in July and it has lost nearly a third in value in three weeks, the steepest such decline since it began trading in 1983.
Total oil product demand in the past four weeks fell 8.9 per cent from a year earlier.
Data from the Federal Reserve showed US industrial production posted the biggest monthly decline since 1974.
"Economic weakness is hitting the stock and oil markets, but the oil price fall is also reflecting a lack of demand. It is very difficult to buy oil if you are having a hard time getting credit lined up," said Francisco Blanch, head of commodity research at Merrill Lynch.
Analysts have scaled back global oil demand growth estimates after a slew of gloomy economic data that suggest the credit crisis has begun to undermine economic growth in the United States, the world's top energy consumer.
The Organization of the Petroleum Exporting Countries (Opec) said today it had brought forward an emergency meeting to discuss the impact of global recession on oil markets to Friday next week.
Pressure has been mounting within the 13-member group to reduce supplies. There are expectations it may take action to support prices.