Oil price plunges 4% on inventory jump, Fed statement

Oil prices tumbled below $68 a barrel Wednesday after the government reported a surprise increase in crude supplies and the Federal Reserve left interest rates unchanged.

Oil for November delivery fell $2.79, or nearly 4%, to settle at $68.97a barrel. Prices initially slipped below $68 after the government's inventory report showed a sharp rise in crude stocks earlier in the day, but held steady after the Fed statement.

"It was definitely a bearish [inventory] report and got sellers invigorated," said MF Global energy analyst John Kilduff.

"Prices have been oscillating back and forth depending on whether or not investors think the economy is picking back up sufficiently to impact global demand," Kilduff said. "This is a report where the edge goes to economic activity not being robust enough to keep pace with the loft price level we've been seeing."

A weak dollar had been propping up prices recently. The greenback was narrowly mixed against the yen, euro and pound on Wednesday. Oil, like other commodities, is priced in dollars so when the U.S. currency weakens, commodities become cheaper for investors holding other currencies.

"The dollar's decline continues to provide terrific support for oil prices and other commoditities, and it won't stop anytime soon," said Kilduff. "The massive amount of stimulus and the deficit will continue to impact the dollar and stoke up inflation fears."