NEW YORK (

TheStreet

) -- Crude oil futures fell to the lowest level in two months as higher distillate and gasoline inventories overshadowed a surprise drop in crude stockpiles.

On Wednesday morning, the Energy Information Administration said oil inventories fell by 3.8 million barrels last week to 336.1 million barrels, beating expectations for a 600,000 barrel build, as forecast by a Platts poll of analysts.

The improved crude stockpile level, however, wasn't enough to break oil's losing streak. Prices on the January contract

slumped as much as 3.4% before dropping $1.95, or 2.7%, to settle at $70.67 a barrel on Wednesday.

Gasoline stockpiles added 2.2 million barrels last week, compared with expectations for a build of 1.8 million barrels. January gasoline futures on the Nymex slid by 7 cents, or 3.5%, to settle at $1.86 a gallon.

Distillate fuels stockpiles unexpectedly rose by 1.6 million barrels, while analysts anticipated a 400,000-barrel drawdown. The January heating oil contract skimmed off 8 cents, or 4.1%, to finish at $1.91 a gallon.

The results followed an industry assessment from the American Petroleum Institute late Tuesday, showing that crude inventories fell by 5.8 million barrels last week. The trade group also reported that distillates rose by 1 million barrels, while gasoline inventories dropped by 753,000 barrels.

The dollar, which supported higher commodity prices Wednesday morning, stabilized later in the session. The Dollar Index was last down by 0.3%.

Oil-related equities fell alongside oil prices but gained strength late in the trading session as the greenback weakened. The NYSE Arca Oil Index was down by 0.2% while the Philadelphia Oil Service Sector Index added 0.7% at the end of trading on Wednesday.

Shares of

ConocoPhillips

(COP) - Get Report

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and

Chevron

(CVX) - Get Report

closed Wednesday's session up by 0.6% and 0.4%, respectively.

Shares of

Exxon Mobil

(XOM) - Get Report

shed 16 cents, or 0.2%, to finish at $72.79.

In exchange-traded funds, the

United States Oil Fund

(USO) - Get Report

closed lower by 97 cents, or 2.6%, at $35.88.

January natural gas futures had strengthened in recent days, benefiting from cold temperatures throughout the Midwest and Northeast. But the contract dropped 21 cents, or 4.2% to $4.90 per million British thermal units Wednesday. According to the Platts poll of analysts, temperatures in the coming weeks may not be cold enough to result in the big withdrawals that the market may be anticipating.

Natural gas inventory data from the Energy Information Administration will hit the market at 10:30 a.m. EST on Thursday. Analysts polled by Platts are projecting a withdrawal of 44 billion to 48 billion cubic feet.

--Written by Sung Moss and Melinda Peer in New York