The most volatile oil market in three years was hit with another sharp swing on Wednesday, as a huge buildup in crude supplies sent U.S. prices to their biggest loss in two months.
Crude oil for May delivery slid 6.6%, a day after rising 3.5% to set a high for the year.
Prices have moved more than 2% up or down on 42 trading days this year, more than the total number of such moves in any of the past three years.
Wednesday slide was triggered by a report from the U.S. Energy Information Administration showing the nation’s crude stockpiles soared to a new record last week, posting the biggest increase in 14 years as oil production rose.
The surprisingly large addition to supplies underscores the persistence of a glut that forced oil prices down to six-year lows earlier in the year. Wednesday’s selloff erased much of this week’s big gains, which were driven by forecasts that booming U.S. oil output would start to decline later in 2015.
“There’s simply not a shortage at all,” said Kyle Cooper, analyst at IAF Advisors in Houston. “There’s a big glut, and that glut remains intact.”
The recent volatility in oil prices highlights the competing outlooks buffeting the market. Many investors are trying to detect whether prices have bottomed, or if they have further to fall. Although it provided relief to consumers at the pump, oil’s slide of more than 50% since last summer was a blow to energy companies and oil-exporting countries, rattling financial markets in the process.
Crude oil for May delivery slid $3.56 to $50.42 a barrel on the New York Mercantile Exchange, posting the largest one-day drop since Feb. 4. Prices are now off 5.4% for the year. Brent, the global benchmark, fell $3.55, or 6%, to $55.55 a barrel on ICE Futures Europe.
Prices rallied Monday and Tuesday on signs of growing Asian demand and expectations that spending cuts by energy companies would soon lead to a drop in production.
But that rally was cut short when the EIA reported Wednesday that U.S. commercial crude-oil inventories now sit at 482.4 million barrels, the highest level in weekly data going back to 1982. In monthly data, which don’t exactly line up with the weekly data, supplies last exceeded this level in 1930.
Energy companies have cut billions of dollars in spending due to low oil prices, and the number of rigs drilling for oil in the U.S. has dropped sharply. But those measures have yet to lead to lower U.S. oil output due to increasing efficiency.
“We still have strong production levels from the shales,” said Janelle Nelson, vice president at RBC Wealth Management, which manages $270 billion. The portfolios that Ms. Nelson oversees have reduced their investments in U.S. shale-oil producers.
Ms. Nelson expects oil prices to rise in coming years but is waiting for crude production to fall before getting more bullish on oil stocks. “What we’re looking for is a sense of equilibrium” in the market, she said.
U.S. crude production rose above 9.4 million barrels a day last week, the EIA said, near multidecade highs. The EIA said Tuesday it expects crude production to start declining in June. A Goldman Sachs report released Monday called for production to peak this month.
Wednesday’s data “reinforces the thought that we continue to have robust production here in the U.S.,” said Adam Wise, managing director at John Hancock Financial Services, who helps oversee about $7 billion in oil-and-gas related investments. He said he expects production to start declining by midyear.
Stored supplies in Cushing, Okla., the delivery point for the Nymex contract, rose above 60 million barrels for the first time on record. Concerns have grown in recent months that Cushing inventories could hit maximum capacity, which the EIA said in September is 70.8 million barrels.
However, demand is expected to rise in coming months as drivers take more warm-weather road trips, and refineries typically buy more crude in the late spring to turn into gasoline and other fuels. The EIA on Tuesday forecast that U.S. crude stockpiles would start shrinking in June.
“The maximum of summer-driving season is usually right around Memorial Day, and that’s a month away,” said James Marshall, partner at brokerage Atlas Commodities LLC. “So that definitely has people thinking there will be more draws going forward now instead of builds.”
Gasoline supplies rose by 800,000 barrels, while stocks of distillates, including heating oil and diesel fuel, fell by 300,000 barrels. Gasoline futures fell 12.17 cents, or 6.5%, at $1.7392 a gallon. Diesel futures fell 8.57 cents, or 4.8%, to $1.6981 a gallon.
Global supplies appear set to continue growing. Saudi Arabia, the world’s top oil exporter, raised crude output to 10.3 million barrels a day in March to a record. On Tuesday it said the kingdom’s production will continue at about 10 million barrels a day, signaling the country is
Write to Nicole Friedman at nicole.friedman@wsj.com