Oil drops on surging dollar, rising US crude stocks

"We suspect the oil market has moved too high, too far, too soon," French bank BNP Paribas said.

The inventory build came despite another fall in US crude oil production to 8.79 million barrels per day (bpd) , down from a peak of over 9.6 million bpd last year.

BNP said that output falls, especially in the United States, would likely result in "an upward drift in oil prices from the end of 2016 through 2017."

Analysts said oil was also pushed lower by the minutes of the Fed's April 26-27 policy meeting which showed the central bank was likely to raise rates in June if economic data pointed to stronger second-quarter growth, driving up the dollar.

Since oil is traded in dollar, a stronger greenback makes fuel purchases for countries that use other currencies at home more expensive, potentially denting demand.

After falling by almost 8 percent against a basket of other leading currencies between January and April, the dollar has since recovered 3.5 percent.

"There was a broad sell-off across commodities as the US-dollar rallied," said ANZ bank, and added that the stronger dollar should keep downward pressure on commodity prices despite the ongoing supply side issues."

Surging oil exports from Iran after international sanctions against it were lifted in January also weighed on markets.

Iran's oil exports are set to jump in May, particularly to Asia and Europe, to be up nearly 60 percent from a year ago to 2.1 million bpd. The rises suggests the country's logistical problems following years of international sanctions have been overcome or were less severe than thought.