Oil down over 2 percent as markets braces for U.S. inventory data

By Barani Krishnan

NEW YORK (Reuters) - Oil prices fell more than 2 percent on Wednesday as traders awaited U.S. government data on crude inventories after a preliminary report from an industry group showed a higher-than-expected stock build, rekindling worries of a glut.

Weaker U.S. equity markets, which have since the start of this year traded in tandem with oil, also weighed on oil, along with a stronger dollar that made commodities denominated in the greenback less affordable to holders of currencies such as the euro.

U.S. crude futures were down $1, or 2.5 percent, at $40.45 a barrel by 10:03 a.m. EDT (1403 GMT), after touching a session low at $40.34.

Brent crude was down 92 cents, or 2.2 percent, at $40.87.

The U.S. Energy information will release supply-demand data for oil for the week ended March 18 at 10:30 a.m. EDT, which was forecast to show crude stockpiles hitting a record high for the sixth week in a row after rising to 523.2 million barrels in last week's report.

The American Petroleum Institute (API) said on Tuesday that U.S. crude inventories rose 8.8 million barrels last week, a gain almost three times higher than that predicted in a Reuters poll.

"We are looking for today's EIA to indicate a total U.S. supply of about 530 million barrels that will support our expectations of a further supply hike," said Jim Ritterbusch of Chicago-based oil consultancy Ritterbusch & Associates.

Traders such as Vitol, Gunvor and Glencore are betting on oil markets remaining oversupplied for at least two more years.

Traders are looking to extend or lock in new leases on storage tanks for crude and refined products in key hubs as far out as the end of 2018, sources at storage firms and trading houses say.

(Additional reporting by Ahmad Ghaddar in LONDON; Editing by Marguerita Choy)