Benchmark U.S. crude fell by $1.92 to end at $105.41 per barrel in New York while Brent crude lost $1.38 to finish at $124.16 per barrel in London.
Prices tend to fall as supplies go up. U.S. supplies surged last week by twice the amount that analysts were expecting, according to government data released Wednesday. And French officials said the U.S. and Europe are thinking of supplying markets with more oil from emergency reserves in hopes of pushing prices even lower.
The tactic briefly worked last summer. At the time, the concern was the loss of Libyan oil, then about 2 percent of global output. This time, policy makers are concerned that a prolonged standoff with Iran could disrupt supplies.
Western nations fear that Iran is developing a nuclear weapon, and they've been putting pressure on the oil-rich nation to open its facilities to inspection. Iran denies the claim, though it has turned away international inspectors who could confirm it.
As both sides dig in, Japan and the European Union have cut back on imports of Iranian oil. An international banking service company has also made it more difficult for Iran to sell oil to other countries. Analysts say the potential disruption to shipments of oil from Iran, the world's third-largest exporter, and other oil-producing nations in the region has driven oil prices about $15 per barrel higher than they otherwise would be.
On Wednesday, France's government said it is considering a release of emergency stockpiles as part of a U.S.-led effort to cool off the rise in oil prices. Government spokeswoman Valerie Pecresse said France is waiting for recommendations from the International Energy Agency before tapping its reserves.
The White House said earlier this month that there were no plans to release oil from the Strategic Petroleum Reserve. On Wednesday, White House spokesman Josh Earnest wouldn't say whether the U.S. had asked France to consider releasing oil from its strategic reserves.
"We are coordinating with our partners around the globe to confront the global phenomenon that is the volatility in the energy markets right now," Earnest added.
In Germany, a spokesman for Chancellor Angela Merkel said the government had received no official request to release its reserves. "If there were concrete proposals or requests, we would examine them," Steffen Seibert told reporters.
The rise in oil has driven up U.S. gasoline prices by 19 percent this year. The national average climbed by more than a penny on Wednesday to $3.911 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. Experts say gasoline could rise as high as $4.25 per gallon this year, breaking the record of $4.11 per gallon set in 2008.
In other energy trading, heating oil lost 1.07 cents to end at $3.2079 per gallon and gasoline futures fell by 1.01 cents to $3.3955 per gallon. Natural gas futures gave up 1.7 cents to finish at $2.191 per 1,000 cubic feet, setting a new 10-year low.
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Associated Press Julie Pace in Washington, D.C. and Pablo Gorondi Budapest, Hungary contributed to this story.