February crude oil hugged the $80 price level in overnight trading after a 2.1 percent sell-off in the Tuesday NYMEX day session, but prices sank further after a U.S. Energy Department report revealed a glut of petroleum products.

A break in the cold weather that had been bolstering fuel demand, together with an increase in Chinese bank reserve requirements, soured traders in the energy sector. Tuesday's move put front-month oil futures down 1.2 percent for the week. Gasoline prices fell by a similar degree, as heating oil prices plummeted 2.8 percent.

Crude's losses were a follow-on to the American Petroleum Institute's forecast of a 1.2-million-barrel build in supplies. API also predicted that distillate inventories, including heating oil and diesel, would rise by 3.6 million barrels, while gasoline stocks were seen jumping by a whopping 6.8 million barrels.

Sell-side analysts also guessed that crude oil stocks rose, though their calls ranged from an 800,000-barrel build to a 1.5-million-barrel build. The Street's estimates of an increase in gasoline stocks ranged from 200,000 to 1.2 million barrels. Distillate supplies were seen falling between 1.3 million and 2.2 million barrels.

Actual inventories reported by the Energy Department this morning rose across the board. Crude oil stores jumped by 3.7 million barrels, gasoline stocks rose by 3.8 million and distillate fuel inventories increased by 1.4 million barrels.

Even more surprising, refinery usage, expected at 80.3 percent of operable capacity, was actually clocked at 81.3 percent, a big step-up from last week's 79.9 percent utilization rate.

Gasoline demand averaged 8.9 million barrels per day, up 0.4 percent from the same period last year, while daily distillate fuel consumption averaged 3.7 million barrels, down 4 percent from year-ago levels.

Margins narrowed this week as processors saw continuing erosion in the wintertime mix premium. And 3-2-1 operations earned a 10.3 percent spread, while distillate-heavy 2-1-1 plants cranked out a 10.5 percent gross profit.

WTI's premium over North Sea Brent held steady at $2.03 per barrel, virtually unchanged from its $2.07 level last week.

There was a bigger shift in the NYMEX three-month roll, which contracted 20 cents to $1.63 a barrel.

Refining Margin Vs. Contango

Tuesday's price decline in February crude sent the contract below its 10-day moving average.

Stochastics and RSI indicators have turned bearish, while MACD is showing signs of rotating lower near term. Further declines would put the 20-day moving average of $78.49 as the next downside target. Resistance on the upside would first be encountered at the 10-day moving average crossing at $81.20.