Oil prices dropped over 4 percent to below $66 a barrel on Thursday as weak U.S. home sales data and high crude oil inventories in the top energy consumer stirred doubts about a potential fuel demand recovery.

U.S. crude fell $3.36 to $65.61 a barrel by 2:24 p.m. EDT London Brent crude fell $3.36 to $64.63 a barrel.

U.S. commercial stockpiles of crude climbed 2.8 million barrels in the week to September 18, surprising analysts who had expected a decline of 1.5 million barrels, according to weekly Energy Information Administration data on Wednesday.

The market came in weak this morning after the inventories yesterday and the existing home sales helped push crude down further, said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

U.S. inventories of gasoline and distillate stocks also rose sharply, indicating that demand remains fragile in the world's largest oil consumer.

Oil prices were also weighed down by data showing that U.S. previously owned home sales dropped unexpectedly in August.

Oil markets have looked toward economic data for signs of a potential rebound in recession-hit fuel consumption.

U.S. jobless benefits claims fell unexpectedly by 21,000 last week, but that news did little to slow price falls.

Adding more concern about global demand, August crude imports in No. 3 consumer Japan fell more than 10 percent from a year ago, the seventh straight monthly decline.

The dollar rose against the euro after central banks said they would scale back some emergency lending programs in light of improved economic conditions, weighing on prices for commodities denominated in the greenback.

Additional pressure came from reports OPEC seaborne oil exports, excluding Angola and Ecuador, will rise 160,000 barrels per day in the four weeks to October 10.

OPEC agreed to a series to a series of output cuts last year to stem a slide in oil prices from a record high over $147 a barrel in July of last year to below $33 in December.

(Additional reporting by Robert Gibbons and Gene Ramos in New York, Emma Farge in London and Fayen Wong in Perth; Editing by Marguerita Choy)

OPEC