Crude futures sagged Wednesday following a U.S. government report that showed rising U.S. inventories of oil and gasoline.

Traders also digested a mixed report from the International Energy Agency (search), which said oil producers would be able to meet demand later this year but that the global supply cushion would remain thin.

Light, sweet crude for June delivery fell $1.62 to settle at $50.45 a barrel on the New York Mercantile Exchange (search).

Unleaded gas dropped 2.83 cents to $1.4820 a gallon, and heating oil slipped 4.65 cents to $1.4031 a gallon.

On London's International Petroleum Exchange (search), June Brent futures fell $1.36 to $50.07 a barrel.

The U.S. Energy Department (search) released data that showed domestic inventories of crude grew by 2.7 million barrels last week to 329.7 million barrels, or 10 percent above year ago levels.

Gasoline inventories grew last week by 200,000 barrels to 213.7 million barrels, or 5 percent above year ago levels as refinery activity notched a slight increase, the agency said. The nation's supply of distillate fuel, which includes heating oil and diesel, rose by 1.7 million barrels to 104 million barrels, or 2 percent above year ago levels.

The Paris-based IEA forecast that production would meet peak winter demand but warned of thin spare production capacity and a possible tightening of stocks in the United States as oil supplies diminish.

The report also said Chinese oil demand — which helped pressure the market last year — grew only 4.5 percent in the first quarter of this year. That's less than a third of the 19.3 percent spike over the same period last year.

"The numbers in the report still point to an easier market ahead ... but in the text they're talking about spare capacity not entering the comfort zone any time in the future," said Kevin Norrish, head of commodities research at Barclays Capital in London.

Wednesday's drop in prices appeared linked in part to the announcement by OPEC president Sheik Ahmed Fahd Al Ahmed Al Sabah that the cartel had increased output by 600,000 barrels a day compared to April to 30.3 million daily. He said that figure includes production from Iraq, which is not under production quotas as it rebuilds.

The hike would last until the third quarter of the year to stabilize prices, the official Kuwait News Agency said.

Consistent builds in oil stockpiles for the past three months have helped to lower Nymex prices from their peak above $58 a barrel in early April.

But last week traders brushed aside the report, instead focusing on possible refinery outages, supply disruptions and fears that OPEC (search) may not be able to keep up with an anticipated surge in demand later this year.

"The trend in U.S. statistics over the last couple of weeks has been one where the steady upward trend in import and crude and inventories appears to be leveling out," said Norrish, of Barclays Capital.

Daniel Hynes, an energy analyst from ANZ Bank in Melbourne, Australia, also predicted a bullish trend in the future.

"While the increase in stocks may put some downward pressure on prices, the market tends to focus on the demand side of the equation," he said. "This strong demand will wipe out any of the strong stockpiles we've had."