Oil drops towards 81 per barrel

US crude stockpiles jumped 7.5 million barrels the week ended March 19,five times more than forecast in a Reuters poll,the American Petroleum Institute API said on Tuesday.

Supplies of distillates including heating oil and diesel declined 2.5 million barrels.

8220;If you just add up 7.5 minus 2.5 you have a net increase of 5 million,and that is pretty big,8221; said Tony Nunan,a risk manager with Tokyo-based Mitsubishi Corp.

8220;Refiners are trying to maintain their margins by cutting crude runs to keep product inventories down,8221; Nunan said,adding that US inventories are still 8220;much higher8221; than their five-year average.

The dollar strengthened against a basket of currencies,curbing the appeal of commodities for investors.

European Union leaders are scheduled to meet on Thursday to discuss how to help Greece deal with its debt crisis and prevent contagion.

8220;When people are concerned about Greece,they are also concerned about the economic health of Europe and consequently oil demand,8221; Nunan said.

US crude runs 8212; which measures demand for crude oil input by domestic refiners 8212; fell by 24,000 barrels per day bpd last week,the industry-funded API said. Refinery utilization dropped by 0.5 per centage point to 80.8 per cent of capacity,while analysts were looking for an unchanged reading.

Oil traders will be seeking confirmation of these numbers from weekly government statistics published by the US Energy Information Administration8217;s EIA,scheduled to be published at 1430 GMT.

Some investors say the inverse relationship between the dollar and oil in the past few years is starting to break.

8220;Pointing to the strengthening dollar when oil is falling is kind of overdone,8221; Nunan said.

8220;I am starting to get skeptical about that. The stronger dollar is not the cause,but it is more that they are moving in a similar fashion8221; affected by weak European growth prospects.