Oil falls on U.S. inventory build, weak demand

By Matthew Robinson

NEW YORK (Reuters) - Oil fell more than $2 on Wednesday after U.S. weekly data showed crude inventories in the world's top consumer rising as high fuel prices continued to erode demand.

U.S. crude settled down $2.45 at $134.55 a barrel. London Brent crude fell $2.13 to settle at $134.33.

U.S. crude oil inventories rose by 800,000 barrels to 301.8 million barrels in the week to June 20, the Energy Information Administration reported, countering expectations of a draw.

The build came as U.S. gasoline demand, which has fallen as high fuel prices force motorists to adjust their driving habits, dipped 2.1 percent over the past four weeks compared with year-ago levels.

"The build in crude stocks and the larger-than-expected build in distillates are the main surprises here," said Tim Evans, energy analyst with Citi Futures Perspective.

"The combination of weak product demand and the build in crude should be bearish overall."

Surging oil prices have weighed on the economies of consuming nations, jumping nearly 40 percent this year to a record near $140 a barrel. Oil has rallied over the past year as supply struggles to keep pace with demand from emerging economies like China.

An influx of funds into commodities from investors seeking a hedge against inflation and the weak U.S. dollar has also supported prices this year.