Oil down 3 percent on U.S. stock build; seen volatile before OPEC

By Barani Krishnan

NEW YORK (Reuters) - Oil prices fell more than 3 percent on Wednesday after U.S. government data showed a 10th straight week in crude builds, but traders cautioned of volatility ahead of this week's OPEC meeting from suggestions of any production cuts.

The dollar's surge to 12-1/2 year highs after pro-rate hike comments by U.S. Federal Reserve Chairperson Janet Yellen also weighed on oil and other dollar-denominated commodities, as it makes them less affordable to those holding the euro and other currencies.

U.S. crude oil inventories rose 1.2 million barrels last week, for a tenth straight week on higher imports and in spite of a jump in refining rates that also boosted stocks of gasoline and distillates, data from the Energy Information Administration (EIA) showed.

"It is another data point pointing to a continued glut in the U.S. markets for oil as production declines remain stubborn even with oil prices hovering at current levels for a significant amount of time now," Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland said.

Inventories at the Cushing, Oklahoma, delivery hub for U.S. crude futures accounted for a third of the build, rising 428,000 barrels, the EIA reported.

Brent futures were down $1.40, or 3.2 percent, at $43.04 a barrel by 12:44 p.m. EST (1744 GMT).

U.S. crude's West Texas Intermediate futures (WTI) were off $1.45, or 3.5 percent, at $40.40.

Both benchmarks had raced into positive territory earlier on Wednesday, reacting to a headline from Tehran's oil ministry news agency Shana that a majority of OPEC members agree on output cuts.

But prices fell back rapidly as the report also said Saudi Arabia, the kingpin in the Organization of the Petroleum Exporting Countries, and other Persian Gulf Arab member countries of OPEC were not agreeable to the reductions.

In spite a global supply glut, most traders expect OPEC at its Friday meeting in Vienna to endorse its decision from last year to pump oil vigorously to protect its market share from non-members like United States and Russia.

Only a few OPEC members, such as Venezuela and Iran, are hoping for output cuts to stabilise crude prices which have tumbled from highs above $100 a barrel in June 2014.

"The market is vulnerable to short covering spikes if anything unexpected on OPEC comes out," said Peter Donovan, broker at Liquidity Energy in New York.

(Additional reporting by Simon Falush in London and Henning Gloystein and Swetha Gopinath in Singapore; Editing by Marguerita Choy)