Oil falls more than 3 pct

Oil dropped more than 3 percent to $70 a barrel today after US government data showed larger-than-expected builds in U.S. refined products due to weak demand in the world's top consumer.

U.S. crude for January delivery dropped $2.36 to $70.26 a barrel.

London Brent crude losses were in the lead, dropping $3.09 to $72.10.

Distillate inventories, which include heating oil and diesel, had a surprise build of 1.6 million barrels, to 167.3 million barrels, contrary to forecasts for a fall of 600,000 barrels, according to the U.S. Energy Information Administration.

Gasoline stockpiles were up 2.2 million barrels at 216.3 million barrels, above analysts' projections of a 1.5-million-barrel build.

"The size of the product build was surprising and somewhat bearish and that is weighing on crude right now," said Stephen Schork, editor of the Schork Report in Villanova, Pennsylvania.

Meanwhile, U.S. crude stockpiles had a surprise draw of 3.8 million barrels, to 336.1 million barrels, against expectations for a 600,000-barrel build.

Further pressure came from rising crude inventories at Cushing, Oklahoma, the delivery point for NYMEX crude oil futures. Inventories there were up 2.5 million barrels, at 33.4 million barrels last week, according to the EIA report.

Rising stocks at Cushing over the last month have been helping to deepen the discount for prompt oil below forward prices, in what traders call a contango.

RETURN TO FUNDAMENTALS?

Crude losses over the last five days had been partly driven by a recovery in the dollar. The dollar index fell against major currencies yesterday, however.

"You're seeing the selling snowball and without the support of strong equity prices and a weak dollar ... the fundamental picture is regaining control of the market," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

Oil is priced in dollars so a rise in the currency makes fuel more expensive to most consumers outside the United States.

For a graphic showing the oil and dollar, see: http://graphics.thomsonreuters.com/129/CMD_OIL$CR1209.gif

The oil market received some support on Wednesday from comments by two oil ministers, who said the Organization of the Petroleum Exporting Countries should not raise its oil output targets when it meets later this month.

The group, which pumps more than a third of the world's oil, meets in the Angolan capital of Luanda on Dec. 22 and many OPEC ministers see the current oil price range of $70-$80 as fair.

"The market is reasonably stable, so no, I don't think so," Nigeria's minister of state for petroleum, Odein Ajumogobia, said on the sidelines of a meeting of gas exporting nations when asked if OPEC needed to pump more oil.