Oil fell more than 3 percent to below $48 on Wednesday, pressured by bearish economic news and a 16-year high in U.S. crude inventories.
U.S. crude futures were down $2.00 a barrel to $47.66 by 1520 GMT (11:20 a.m. EDT), eroding Tuesday's 2.6 percent gain.
London Brent crude was down $1.63 to $47.60.
The U.S. government's Energy Information Administration data showed a 2.8 million barrel increase in crude oil inventories. Gasoline stockpiles increased by 2.2 million barrels, running counter to forecasts of a 1.4 million-barrel decline.
The gasoline numbers are clearly a surprise, said Addison Armstrong, an analyst at Tradition Energy in Connecticut.
There is no indication in these numbers that the economy is strengthening. It looks like more of the same, said Joseph Arsenio, managing director at Arsenio Capital Management in Larkspur, California.
Oil prices have recovered strongly from a low of $32.40 hit in December and rose more than 11 percent in the first quarter of this year.
Gains over the first three months were driven by recovering stock markets, signs of a greater investor appetite for risk and output cuts by the Organization of the Petroleum Exporting Countries.
The producer group reached agreements in September to remove 4.2 million barrels per day and has delivered almost 80 percent of the promised reduction.
Reuters latest survey put compliance at 79 percent for March, the seventh consecutive month in which the group's output has declined.
In deciding not to lower its output targets further in March, OPEC said it was giving the world a chance to recover from global economic downturn and looked ahead to this week's G20 meeting in London to stimulate the economy and help shore up fuel demand.
Few expect instant results, but many analysts say OPEC, which meets again at the end of May to reassess the situation, has taken out enough oil to bolster prices.
In the immediate term the demand outlook is weak, and a fresh flurry of bearish economic news emerged on Wednesday that weighed on stock markets and added pressure on oil prices.
Business confidence in Japan, the world's second largest economy and the third largest oil consumer, tumbled faster than ever in the first quarter to its worst on record, the Bank of Japan's Tankan corporate survey showed.
Managing Director of the International Monetary Fund Dominique Strauss-Kahn predicted the world economy would contract between 0.5 and one percent this year, in an interview published on Wednesday, following on from IMF reports predicting a decrease of up to one percent this year.
(Additional reporting by Ikuko Kao and Barbara Lewis in London and Fayen Wong in Perth; Editing by James Jukwey)