Oil cut short a four-day rally on Wednesday, with investors and traders focusing again on a supply glut after U.S. crude stocks set record highs.
A rebound in the dollar also weighed on crude prices because it makes dollar-denominated commodities pricier in other currencies, cutting demand from overseas buyers who hold currencies like the euro.
U.S. crude broke below the key $50 a barrel mark, losing almost a third of the near 20 percent gain it had made since Thursday's close. It was down $3.65, or 7 percent, at barrel, to $49.40 by 12:45 p.m. EST.
Brent oil lost about 5 percent, or $1.90, to $55.26 a barrel.
U.S. crude stocks jumped by 6.3 million barrels last week to 413.06 million, their highest since records began in 1982, the government-run Energy Information Administration reported. Traders and investors had expected a build of just about 3.5 million barrels for the week ended Jan. 30.
"The truth of the matter is that after this newest record high in crude inventories, it's probably going to be outside forces like the dollar, stock market and economic data which will determine if oil prices continue to go up or pull back," said Phil Flynn, analyst at the Price Futures Group in Chicago.
Oil's $9 climb since Thursday had raised speculation that the market's seven-month rout might be near an end.
But the EIA data reignited worries about the global oil glut that sparked the selloff, which erased about 60 percent off crude prices between June and January.
"If the market was looking for something to try and extend the four-day rally, it was certainly not here" in the EAI report, said Sal Umek, senior associate at the Energy Management Institute in New York.
The price rebound was sparked by data highlighting the dramatic drop in U.S. oil drilling rigs over the past few months and cutback in exploration budgets of energy firms that suggested to some that the crude glut may be overcome quicker than thought.
But research analysts at investment banks said the market will likely remain oversupplied through the first half at least.
"In our experience, oil markets rarely exhibit V-shaped recoveries and we would be surprised if an oversupply situation as severe as the current one was resolved this soon," Macquarie Research said in a report.
Too quick a price recovery will also reduce chances for a meaningful cut in U.S. shale oil supplies that bloated the market.
Analysts at Morgan Stanley said in a report that producers will feel "no notable difference" between $40 and $60 a barrel after prices had more than halved from June peaks of over $100.
"However, if the rally goes well beyond this band, we see risk of counterproductive behavior that would push off recovery and make us more bearish 2H15 and 2016," they said.
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