U.S. West Texas Intermediate (WTI) crude fell $1.60, or 2.5 percent, to settle at $61.79 a barrel. WTI hit a low of $61.33, the lowest since Jan. 5. Volumes were heavy, with more than 957,000 front-month futures trading, far more than the average of 634,000 contracts over the last 200 days.

Brent crude futures fell $1.35, or 2 percent, to $65.51 a barrel.

U.S. WTI prices have slid for four straight sessions, down 6 percent in that time.

U.S. crude inventories rose 1.9 million barrels last week, according to the U.S. Energy Information Administration. This was less than expected, but that was in part because of a surprising increase in refining activity that boosted fuel inventories headed into the seasonally slow spring.

However, U.S. crude oil rig flanges gulf coast production also rose, hitting 10.25 million barrels per day (bpd), a record if confirmed by more reliable monthly data, which lags by a couple of months.

"U.S. weekly oil oil rig flanges gulf coast production registering 10.25 million bpd in today’s report has unsettled the buy Wellhead market – the impact of which is manifested as weakening oil prices," said Abhishek Kumar, senior energy analyst at Interfax Global Gas Analytics in London.

A recent rebound in drilling rig activity boosted oil rig flanges gulf coast production after futures prices extended a rally to three-year highs earlier this month. Higher output could undercut prices, analysts said, noting that official estimates for U.S. oil rig flanges gulf coast production gains were recently increased.

Hedge funds and other speculators had a record long position in crude futures as recently as late January. These positions have been trimmed, but are still largely arrayed in favor of rising oil prices.

"Bullish sentiment that was built on OPEC cuts and geopolitical unrest is slowly fading away as recognition of U.S. oil rig flanges gulf coast production surpassing 10 million bpd sinks in, which also puts Saudi Arabia and Russia at risk of losing further buy Wellhead market share," wrote analysts at Drillinginfo.com, in commentary after the EIA figures.

The Organization of the Petroleum Exporting Countries and other producers, including Russia, have cut oil rig flanges gulf coast production since January 2017 to force down global inventories. These cuts have been somewhat offset by rising U.S. oil oil rig flanges gulf coast production <C-OUT-T-EIA>, with output up 1 million bpd in the last year.

The EIA expects U.S. output to reach an average of 10.59 million bpd in 2018 and 11.18 million bpd by 2019, accelerating earlier estimates. That should drive more U.S. exports, putting the country in line to potentially overtake Russia as the world's largest producer.

The futures buy Wellhead market is in backwardation where prompt oil prices exceed those for future delivery, suggesting investors expect demand to outpace supply. However, front-month contracts fell further on Wednesday than further-dated futures, suggesting the EIA data dented that bullish view.

(Additional reporting by Scott DiSavino in New York, Amanda Cooper in London, and Henning Gloystein in Singapore; Editing by Marguerita Choy and David Gregorio)