NEW YORK ( TheStreet) -- Crude prices fell back to the $80 a barrel level Wednesday after the U.S. Energy Department's weekly inventory report ignited some demand concerns after reporting a larger-than-expected surge in crude supplies.

Crude oil stockpiles rose by 7.3 million barrels for the week ending March 19, according to the Energy Information Administration, bringing total inventory levels to 351.3 million barrels. The jump easily outpaced expectations calling for a 1.67 million barrel buildup, according to Platts.

Market observers received a hint of the buildup on Tuesday when the American Petroleum Institute, an industry trade group, reported its own 7.51 million barrel rise.

The May crude oil contract dipped below $80 soon after the data release to an intraday low of $79.88 a barrel. The contract ultimately closed $1.30, or 1.6% lower, at $80.61 a barrel.

Despite the big buildup in crude levels, the government report also reflected a steeper-than-expected drop in fuel stocks. Gasoline inventories fell by 2.7 million barrels last week, while distillates tumbled by 2.4 million barrels. Analysts had anticipated much lighter drawdowns on both fronts, with gasoline stocks dropping by 1.88 million barrels and distillates falling by 1.25 million barrels.

"The recent pattern of increasing crude surpluses and decreasing product surpluses has continued," said Barclays Capital analyst Paul Horsnell who said oil product inventory surplus relative to the five-year average declined by 2.6 million barrels to 26.8 million barrels -- the lowest level in a year -- while the crude oil inventory surplus above the five-year average rose to its highest level in three months, at 21.9 million barrels.

"The crude oil inventory build was primarily the result of a sharp 0.97 million barrel per day increase in imports from the previous week, which we believe to be a further slug of offshore inventory unloading, while refinery runs remained becalmed," Horsnell said.

The refinery run rate rose by 0.5 of a percentage point to 81.1% last week, according to the EIA.

The May heating oil contract lost 3 cents, or 1.5%, to settle at $2.08 a gallon, while May gasoline shed 4 cents, or 1.8%, to $2.22 a gallon.

Phil Flynn, energy analyst at PFGBEST, said better-than-average demand for gasoline and distillates was helping lend support to crude, keeping it from sliding further. But he also said market observers are simply more attuned to larger economic trends than fundamental data.

"The API kind of softened the blow and made the markets realize the numbers would be off," Flynn said. "I think the market realizes that inventories are just a subplot to what's really driving oil prices, and that continues to be the macroeconomic madness around the world. It's reacting more to Portugal, the dollar and Treasuries than the supply-demand side."

To his point, the dollar index, which measures the greenback against a basket of currencies, was up 1.3%, making commodities less attractive. Investors boosted the dollar and retreated from the euro after Fitch Ratings demoted Portugal's sovereign debt rating to "AA-" from "AA."

"The big moves don't seem to come on data anymore," Flynn added. "It seems like it's coming from the euro, or from what European Central Bank President Jean-Claude Trichet says."

Energy stocks slumped alongside the broader market Wednesday with the NYSE Arca Oil index down 0.7%, while the Philadelphia Oil Service index dropped 0.9%.

Dow component Chevron ( CVX) shed 84 cents, or 1.1%, to $73.93 and Exxon Mobil ( XOM) lost 45 cents, or 0.7%, to $66.50.

But major refiner shares appeared to perk up on the run-rate data. Valero Energy ( VLO), Western Refining ( WNR) and Tesoro ( TSO) advanced 1.9%, 1.7% and 3.6%, respectively.

In integrated oil news, ConocoPhillips ( COP) said its stake in Russia's Lukoil will be halved after it unloads a chunk of its 20% interest, according to The Associated Press. ConocoPhillips shares added 2 cents, or 0.04%, to $52.53.

Natural gas inventories are expected to show the first injection of the season, according to analysts polled by Platts, who are projecting an additional 9 billion to 13 billion cubic feet to natural gas storage levels in the week ended March 19. The Energy Information Administration releases its weekly report at 10:30 a.m. ET on Thursday.

Natural gas for April delivery lost 3 cents, or 0.6%, to settle at $4.11 per million British thermal units.

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