Oil prices dive on US stockpiles build, Fed

Crude oil prices tanked Wednesday as investors weighed a worrying increase in US stockpiles and disappointment that the Federal Reserve did not announce a big, new economic stimulus.

New York's main contract, light sweet crude for delivery in July, tumbled $2.23 to close at $81.80 a barrel.

In London trade, Brent North Sea crude for August settled at $92.38, down $3.07 from Tuesday's closing level.

"The market was expecting something, some quantitative easing (from the Fed), that's why we're seeing a huge sell-off," said Rich Ilczyszyn, an analyst at iiTrader.com.

The Federal Reserve wrapped up a two-day policy meeting Wednesday announcing it would extend its bond-swap program aimed at tamping down longer-term interest rates. The program, known as "Operation Twist," was due to expire at the end of June; it was extended until the end of the year.

Some market participants were hoping the Fed would unleash a new round of bond purchases, or quantitative easing. The previous two QEs had stimulated investment in dollar-priced commodities.

Meanwhile, the US government's weekly petroleum stockpiles report showed crude oil stocks increased by 2.9 million barrels in the week ending June 15, instead of the 1.0 million barrel decline expected by analysts.

"We saw another build for crude stock, that is just showing how we're oversupplied here in the US," reflecting weak demand in the world's largest oil-consuming country, said Matt Smith at Summit Energy.

On the European front, traders were also skeptical of the Group of 20 economic powers' statement issued Tuesday vowing that eurozone members would "take all necessary measures" to stabilize the debt-riddled single currency bloc.

"The view that Europe will come out all guns blazing is a little optimistic," said Jason Hughes, head of premium client management for IG Markets Singapore.