Meanwhile, the pain at the pump continued. Retail gas prices set yet another record, rising to a national average of nearly $3.62 a gallon.

Oil finished at its lowest point in more than two weeks after the central bank said it would cut the federal funds rate by a quarter percentage point to 2 percent.

"It doesn't really change anything," Tim Evans, an energy analyst at Citigroup Inc., said of the rate cut. "The market had already largely priced in a quarter-point cut. It got a quarter-point cut."

Light, sweet crude for June delivery fell $2.17 to settle at $113.46 on the New York Mercantile Exchange. Crude closed at $113.79 on April 14.

Interest rate cuts tend to weaken the dollar, and investors buy commodities such as oil as a hedge against inflation when the greenback falls. A weaker dollar also makes oil cheaper for overseas buyers.

The wording of the statement accompanying the Fed's announcement left traders wondering whether future cuts are likely. While signaling it is concerned about weak economic growth, the central bank also cited worries about inflation - a risk propelled in large part by higher energy prices.

"Traders might be leaving the possibility open that they may just be keeping rates at this level for a while," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill. Leaving rates unchanged, he added, could put further pressure on the dollar. "This currency factor is still alive as a supportive force," Ritterbusch said.

Oil prices were already down earlier in the session after the government reported a surprising jump in crude oil and distillate fuel inventories last week.

In its weekly inventory report, the Energy Department's Energy Information Administration said crude oil inventories rose by 3.8 million barrels, more than double the increase that analysts surveyed by energy research firm Platts had expected.

Meanwhile, inventories of distillates, which include heating oil and diesel fuel, rose by 1.1 million barrels, more than seven times the expected increase.

Investors shrugged off a 1.5 million barrel decline in gasoline inventories, nearly double the drop that analysts forecast. In part, that's because despite the decline, supplies of gasoline remain high for this time of year. Also, demand for gasoline fell slightly over the last four weeks, on average, compared with the same period last year, EIA data show.

"The demand just isn't there, and there's plenty of supply," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

Analysts say record gas prices are depressing gasoline demand. At the pump, the national average price of a gallon of regular gas rose a cent overnight to a record $3.617, according to a survey of stations by AAA and the Oil Price Information Service. Diesel fuel rose 0.6 cent to a new record of $4.25 a gallon.

At some point, falling demand will pull prices down, analysts say, though few are willing to predict when that will happen.

Gas prices are following crude prices higher. But because gasoline demand has fallen for several months, refiners have not been able to raise gas prices fast enough to keep up with the rising cost of crude, which they must buy to turn into fuel. Crude prices are about 76 percent higher than they were a year ago, but gas prices are only 22 percent higher.

That is putting refining margins under pressure, and as a result, many refiners have cut gasoline production in recent weeks. Refinery activity fell slightly last week, while analysts were expecting a slight increase.

In other Nymex trading Wednesday, May gasoline futures fell 0.8 cents to settle at $2.9312 a gallon and May heating oil futures fell 6.95 cents to settle at $3.1770 a gallon. June natural gas futures rose 0.1 cents to settle at $10.843 per 1,000 cubic feet.

In London, Brent crude futures fell $2.07 to settle at $111.36 a barrel on the ICE Futures exchange.

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AP Business Writer John Wilen contributed to this report.

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