Oil dropped more than three per cent to $70 a barrel yesterday after government data showed larger-than-expected builds in US refined products due to weak demand in the world's top consumer.

US crude for January delivery dropped $2.36 to $70.26 a barrel by 1.40 p.m. EST.

London Brent crude losses were in the lead yesterday, 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 US 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, US 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.