NEW YORK: World oil prices weakened on Wednesday following a surprise jump in US crude reserves, although the same government snapshot also showed a larger-than-expected drop in motor fuel stockpiles.

New York's main oil futures contract, light sweet crude for September delivery, closed 59 cents lower at 118.58 dollars.

In London, Brent North Sea crude for September delivery fell a heavier 70 cents to settle at 117.00 dollars per barrel.

Prices fell back after the US Department of Energy (DoE) announced that American crude reserves increased by 1.7 million barrels in the week ended August 1.

The reading caught the market off guard because expectations had been for a 200,000-barrel decline. The weekly report often has an impact on market prices.

However, the DoE added that motor fuel stockpiles plunged 4.4 million barrels last week. That was notably more than analysts' consensus forecasts for a drop of 1.5 million.

Traders are closely tracking the level of US gasoline stockpiles amid the ongoing peak-demand summer driving season, when many Americans take to the roads for their holidays.

Oil prices had rebounded slightly in earlier trade after large falls the previous day, but the gains evaporated in afternoon trading.

Oil flows through the Baku-Tbilisi-Ceyhan (BTC) pipeline, which delivers exports into the Mediterranean region, were cut on Wednesday after an explosion sparked a fire in a section in eastern Turkey, local officials told the Anatolia news agency.

The news failed to boost prices, however.

The BTC pipeline carries oil from the Caspian Sea fields to Turkey's Mediterranean port of Ceyhan, where tankers transport the crude to Western markets.

Crude prices had tumbled lower on Tuesday, closing below 120 dollars for the first time in three months, as signs of a slowing global economy raised doubts about future energy demand.

Oil futures have now slumped by about 20 percent since hitting record highs above 147 dollars per barrel on July 11.

"The decline in oil prices largely reflects ongoing worries that oil demand has weakened, especially in the US," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney.

"As well, it appears that Tropical Storm Edouard has had only a limited impact on oil production in the Gulf of Mexico," he said.

The storm made landfall Tuesday on the Texas coast. The market had initially feared Edouard would turn into a hurricane that could disrupt oil output.

Traders were also keeping a watch on diplomatic moves related to Iran's nuclear energy drive.

The United States called for "punitive" measures against Iran on Wednesday over its response to the international offer to persuade it to freeze its nuclear programme.

The call came ahead of new talks between the United States, Britain, China, France, Germany and Russia on the latest Iranian letter to the powers on its nuclear programme.

Washington believes the programme could mask a weapons drive, but Tehran insists its nuclear ambitions are peaceful.

Iran is the world's fourth biggest producer of crude oil. - AFP/de