Oil prices dive as US crude reserves jump

World oil prices fell sharply Wednesday on news that US commercial crude inventories rose by more than expected last week, indicating weakening demand and stoking supply glut concerns.

At around 1645 GMT, US benchmark West Texas Intermediate for delivery in October recoiled $1.55 to $44.80 per barrel.

Brent North Sea crude for the same month lost a hefty $1.30 to $47.07 a barrel compared with the closing level on Tuesday.

The US government's Department of Energy (DoE) reported that commercial crude inventories rose by 2.3 million barrels in the week to August 26.

That easily outstripped market expectations for a smaller gain of 1.3 million barrels, according to analysts polled by Bloomberg News, and followed a 2.5-million gain the previous week.

Last week's increase also exceeded an estimated rise of 900,000 barrels from industry body the American Petroleum Institute.

"Oil prices added to early declines after DoE inventory data showed a build," said CMC Markets analyst Jasper Lawler.

Rising US stockpiles tend to send oil prices lower because they add to the global supply glut -- and indicate weakening demand in the world's top consumer of crude.

The DoE added Wednesday that gasoline or petrol reserves fell 700,000 barrels, while distillates -- including diesel and heating fuel -- rose 1.5 million.

Prices also fell on the back of the stronger greenback, which makes dollar-denominated commodities more expensive for buyers using weaker currencies.

Ahead of the US inventories data, the market was roiled by oversupply worries as Iran's oil minister reportedly stated his country planned to boost output.

The comments by Bijan Zangeneh, carried by Iran's official news agency on Tuesday, added to a feeling that an informal OPEC meeting with Russia in September may not result in a deal to boost prices.

Zangeneh said Iran needed to raise its output to regain the market share lost while it was under international sanctions, which were lifted only in January.

Iran has struggled to raise production above four million barrels per day since the sanctions were removed, according to the report, which said it is currently producing 3.8 million.

"Many speculators are now just waiting to find out whether Saudi Arabia and other members of OPEC will agree next month to a production freeze deal with some non-OPEC producers, led by Russia," added City Index analyst Fawad Razaqzada.

"Both Iran and Iraq have come out in recent days, stating that they support the idea of an output freeze... as long as it doesn't impact their own pursuit of market share.

"If these important OPEC members go into the meeting with that sort of mentality, I would be very surprised to see any sort of agreement being achieved."

Traders are now awaiting the release this coming Friday of US jobs figures, which will give a fresh handle on the US economy and could guide the Fed's decision on when to hike interest rates.

The non-farm payrolls data release is a crucial indicator of the strength of the world's largest economy.

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