Economists are anxious that escalating trade tensions between the USA and China will hurt the global economy, lowering demand.
The decline in overall inventories was partially due to a fall-off in stocks at the Cushing, Oklahoma, delivery hub for US crude futures, which were down by 2.1 million barrels. USA crude was down 43 cents, or 0.6 percent, at $73.68.
Brent crude LCOc1 fell $5.46, or 6.9 percent, to settle at $73.40 a barrel.
The spectre of tariffs on a further $200 billion of Chinese goods sent commodities lower along with stock markets, as tension between the world's biggest economies intensified.
Lower oil prices are particularly important to US consumers in the summer months when driving reaches its heaviest.
"Trade concerns have bitten today", said Michael McCarthy, chief markets strategist at CMC Markets.
Libyan oil production has fallen to 527,000 barrels per day (bpd) from a high of 1.28 million bpd in February following port closures in late June, the NOC said on Monday. Concerns about a lack of spare capacity had led crude to rally.
The bearish mood was also fueled by news the United States would consider requests for waivers from sanctions due to snap back into place on Iranian crude exports.
However, oil prices have been volatile in recent weeks after the United States said it would reinstate sanctions against Iran, a major producer.
Among Iran's major oil clients, South Korea and Japan have sought waivers but China, India and Turkey have indicated they may not heed USA measures.
President Trump has been pressuring the Organization of the Petroleum Exporting Countries, or OPEC, to increase production to cool off oil prices, which recently hit the highest levels in over three years.
The falls came despite a U.S. government report that American crude oil stockpiles fell by more than 12 million barrels last week and are about 4% lower than average for this time of year.
Supply to the US market has also been squeezed by the loss of some Canadian oil production.