NEW YORK (Dow Jones)--Crude oil prices fell to a seven-session low Wednesday due to a sharp rise in U.S. crude inventories and on a stronger dollar. Worries over sovereign debt in Europe led investors out of perceived riskier assets.

Light, sweet crude for May delivery settled $1.30, or 1.6%, lower at $80.61 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled $1.08, or 1.3%, lower at $79.62 a barrel.

The U.S. Energy Information Administration reported a hefty 7.25 million barrel increase in crude inventories for last week, substantially more than the 1.4 million barrel gain that analysts surveyed by Dow Jones Newswires were expecting.

Oil briefly dropped below $80 a barrel on the data, but market participants were not entirely surprised by the level of the rise since the American Petroleum Institute, an industry group, had reported late Tuesday a 7.5 million barrel increase in crude stocks.

The stock build was partly due to an increase in crude imports to their highest weekly total since September. Tim Evans, analyst with Citi Futures Perspective in New York, noted that crude imports may have been bunched up following weather-related delays in recent weeks.

Some of the losses in oil, though, were halted by a greater-than-expected draw in oil product stocks. Gasoline inventories fell 2.7 million barrels against expectations of a 1.3 million barrel fall and distillate stocks, that include diesel and heating oil, slipped 2.4 million barrels compared with projections of a 600,000 barrel decline. Refinery processing rates increased 0.5 percentage point to 81.1% of total capacity.

With the U.S. gearing up for the summer driving season, more attention is paid to the size of gasoline stocks and the level of oil demand.

Total products supplied--a proxy for demand--in the last four weeks averaged 19.4 million barrels a day, a 3.6% increase on a year ago. Gasoline demand last week rose 238,000 barrels a day to 9.1 million barrels a day.

Oil prices were also weighed down by sovereign debt woes in Europe. This caused the dollar to soar to a 10-month high against the euro as investors exited riskier assets and moved into the dollar. Oil tends to fall on a stronger dollar as it makes the commodity more expensive to buy with other currencies.

"We're seeing a flight to safety that's hit commodities across the board, and oil is no exception," said Mike Zarembski, senior commodities analyst with OptionsXpress in Chicago.

Investors were nervous after Fitch Ratings lowered its long-term credit rating for Portugal, adding to fears that the debt crisis in Europe may not be contained.

Investors were less confident in the European Union's ability to provide a bail-out package for Greek debt after France and Germany sought the participation of the International Monetary Fund in offering financial aid to Greece. The EU will meet Thursday for a two-day summit.

Traders were also monitoring news that top oil producer Saudi Arabia had arrested 113 al Qaeda-linked militants accused of plotting attacks on oil facilities and security sites in the kingdom, state-run Saudi Press Agency reported Wednesday.

Front-month April reformulated gasoline blendstock, or RBOB, settled 4.17 cents, or 1.8%, lower to $2.2211 a gallon. April heating oil settled 3.11 cents, or 1.5%, lower to $2.0707 a gallon.


More information on settlements and highs and lows for futures on Nymex and ICE platforms can be found by searching for the following headlines:


Nymex Light Crude Oil Close
Nymex Harbor RBOB Gasoline Close
Nymex Heating Oil Close
ICE Brent Crude Oil Close
ICE Gas Oil Close


-By Claire Rangel, Dow Jones Newswires; 212-416-2846; claire.rangel@dowjones.com