The benchmark contract, light sweet crude for delivery in February, slumped $US5.95 dollars to close at $US42.63 dollars a barrel on the New York Mercantile Exchange.
Brent North Sea crude for February shed $US4.67 dollars to end at $US45.86 dollars a barrel on London's InterContinental Exchange.
The US Department of Energy said that stockpiles of crude increased by $US6.7 million barrels last week.
That was far higher than analysts predictions of a 700,000 barrel stockpile.
Inventories of distillates which include heating fuel, which is currently in high demand during the US winter, meanwhile grew by 1.8 million barrels in the week to January 2.
That too was above market expectations of 800,000 barrels.
"The US oil inventories increase comes as a surprise and will drive prices lower,'' Thierry Lefrancois of French investment bank Natixis said.
"Prices can hold on only if OPEC keeps discipline as it seems to be the case.''
Ahead of stockpile figures, oil prices had risen back above $US50 dollars this week on supply worries owing to deepening political frictions in Europe and the Middle East.
On Tuesday, the New York contract hit an intraday peak of $US50.47 dollars and Brent leapt to its highest level in more than a month, $US 52.21.
Prices had rallied by more than $US2 dollars on Monday after Israel sent soldiers into the Gaza Strip.
Saudi Foreign Minister Prince Saud Al-Faisal overnight ruled out the use of oil as a weapon by Arab states to secure an end to the 12-day conflict in the Gaza Strip.
"Oil is not a weapon. You can't reverse a conflict by using oil,'' he told reporters.
Along with the Israeli-Hamas conflict, oil prices are rising because of the Russia-Ukraine gas row gas limiting supplies to Europe.
Shortages of natural gas have spread across Europe, reaching France and Italy.
