Oil prices extended losses on Wednesday after weekly government data showed a sharp rise in U.S. crude stockpiles as both exports and refinery activity fell.
Futures were already under pressure after OPEC sources told Reuters that the 14-nation cartel would potentially scale back its deal to limit oil production at its June meeting.
U.S. commercial crude inventories surged by 5.8 million barrels in the week through May 18.That surprised the market, which was expecting a decline based on earlier industry data and a weekly poll of analysts by Reuters.
Brent crude futures were down 85 cents, or 1.1 percent, at $78.69 a barrel by 11 a.m. ET (1500 GMT), while U.S. crude fell 77 cents, also down 1.1 percent, to $71.43 a barrel.
U.S. crude oil exports dropped by more than 800,000 barrels a day last week to about 1.75 million barrels a day. Meanwhile, refiners produced less distillate fuel, which includes diesel and heating oil.
Gasoline stockpile levels also surprised the market by jumping 1.9 million barrels a day, while distillate inventories fell slightly less than expected.
Gasoline futures were down 1.5 percent at $2.2362 per gallon following the data release.
Preliminary EIA data on Wednesday showed U.S. output roughly unchanged at just more than 10.7 million barrels a day.
Oil prices have gained nearly 20 percent so far this year, with Brent briefly rising above $80, driven primarily by coordinated supply cuts by the Organization of the Petroleum Exporting Countries and partners including Russia.
The price has also been affected by rising geopolitical tensions that could dent global output just as demand is set to hit 100 million barrels per day in the final quarter of this year, according to the International Energy Agency.
OPEC may decide to raise oil output as soon as June due to worries over Iranian and Venezuelan supply and after Washington raised concerns the oil rally was going too far, OPEC and oil industry sources familiar with the discussions told Reuters.
"If there is a confirmation of easing OPEC+ supply restrictions, the $100+ a barrel theme will have to move from 'lack of prompt supply' to 'lack of spare capacity'," said Petromatrix strategist Olivier Jakob.
The United States plans to reimpose sanctions on major oil producer Iran, while an economic crisis has decimated Venezuela's crude output.
Based on the prospect of a shortfall in supply relative to demand, investors had driven their bets on a sustained rise in the price of oil to record highs earlier this year.
But with so much uncertainty over how sanctions might affect Iranian supply, fund managers have cut their holdings of crude futures and options by more than 10 percent in the last seven weeks to the lowest level this year.
"It does seem like any move above $80 attracts selling interest right now and that could potentially lead us to a period of consolidation, where I think $77.50 or even $75 might be in focus," Saxo Bank senior manager Ole Hansen said.
— Reuters contributed to this story.