Front-month Brent crude futures, the worldwide benchmark, traded down 2.6% at $63.60, having earlier dipped to their lowest level since mid-February.
That was much less than the 900,000-barrel decline analysts forecast in a Reuters poll and well below the 5.3 million-barrel drawdown, the American Petroleum Institute (API) reported on Wednesday.
The U.S. Energy Information Administration (EIA) said U.S. crude stocks fell by around 300,000 barrels last week, to 476.49 million barrels.
The Organization of the Petroleum Exporting Countries (OPEC) and its Russia-led allies agreed on December 7 to slash oil production by more than the market had expected.
The price of oil tanked on Wednesday morning after China upped the ante in the trade war, hinting at stifling rare earth minerals exports to the United States-a move that rekindled concern about the global economy and had investors flee risk assets.
"The oil inventories report has added to the bearish sentiment prevailing in today's trading session", said Abhishek Kumar, head of analytics at Interfax Energy in London, noting "Demand-side concerns emerging from the ongoing U.S".
WTI crude futures were at $56.02 per barrel on the New York Mercantile Exchange, down 57 cents from their previous settlement.
Brent futures posted an 11% slide in May and WTI a 16% drop, their biggest monthly losses since November. -China trade war will weigh on economic growth in China and the rest of the world. This kind of deliberately provoking trade disputes is naked economic terrorism, economic chauvinism, economic bullying, 'he said.
They also went tactically short Brent-Dubai Q3'19 swap spread due to mounting risks from Iran sanctions.
Bernstein Energy said under "a full-blown trade war scenario", global oil demand would grow by just 0.7% this year, half of current estimates. "That market participants are prepared to pay such a premium for oil that can be delivered at short notice points to tight oil supply". Iran needs to export at least 1.5-2.0 million bpd of crude to balance its books.
Crude prices have risen by about 30 percent since the start of the year when OPEC+, which includes Russian Federation, cut production to reduce a global glut.