By David Hodari and Stephanie Yang 

-- Oil futures dropped sharply on Thursday amid building U.S. inventories and concerns about global trade.

-- West Texas Intermediate futures were down 6.5% at $57.44 a barrel in midmorning trading in New York, on course for their sharpest daily drop so far in 2019 and set to close at a two-and-a-half-month low.

-- Brent crude, the global benchmark, fell 5.5% to $67.07 a barrel.

Highlights

U.S. Inventories: Thursday's selloff marked a second negative day for oil prices, with Energy Information Administration data released Wednesday pointing to a U.S. supply glut. The report showed U.S. oil inventories surged by 4.7 million barrels last week to 477 million barrels, the highest total since July 2017.

"The main driver today is the inventory data out of the U.S. and it's weak across the board, showing markets are not tightening," said Giovanni Staunovo, director of UBS Wealth Management's chief investment office.

Gasoline stockpiles rose by 3.7 million barrels, and distillate stockpiles climbed by 800,000 barrels.

The data also showed total products supplied over the last four-week period fell 2.7% compared with last year, a negative sign for fuel demand ahead of the holiday weekend.

"Heading into Memorial Day weekend and you have a gasoline build, that's kind of a worst possible scenario here for the energy patch," said Bob Yawger, director of the futures division at Mizuho Securities USA.

Speculators: Selling gathered momentum Thursday, largely due to speculators rushing to cancel bets on rising prices, traders said. Crude supply has climbed amid an intensifying trade spat between the U.S. and China. The dispute has raised anxieties about oil demand as a bellwether for global economic growth.

Trade tensions have prompted selling across global equities indexes, with a Chinese official saying the U.S. should "adjust its wrong actions" if it wants to continue negotiations, according to CNBC. The S&P 500 was last down 1.2%, and the Stoxx Europe 600 was last down 1.3%.

As of May 14, bullish bets on crude oil outnumbered bearish bets by 258,988 contracts, according to data from the Commodity Futures Trading Commission. Last month, net long positions held by speculators reached the highest level since October.

"This is a very flows-driven market right now," said Scott Shelton, a broker at ICAP PLC. "You just threw everything bullish you basically could at the market, and nothing happened."

Insight

Geopolitical Risk: Weakening oil demand comes in the context of a continuing production-cut pact between the Organization of the Petroleum Exporting Countries and its allies, which has supported prices over recent months.

Oil has been strengthened further in recent weeks amid friction between the U.S. and Iran, which has since eased.

"Tensions between the U.S. and Iran kept the risk premium of crude tighter, but they've slightly cooled in the last week," said Geordie Wilkes, head of research at Sucden Financial Research. "But it may not take long for them to re-escalate."

In addition to such geopolitical tensions, U.S. demand data will also be closely watched by investors and analysts.

Ahead

-- Baker Hughes on Friday releases its weekly rig-count report detailing U.S. drilling activity.

Write to David Hodari at David.Hodari@dowjones.com and Stephanie Yang at stephanie.yang@wsj.com

(END) Dow Jones Newswires

May 23, 2019 13:35 ET (17:35 GMT)