Stocks of distillates grew by 6.4 million barrels last week amid weak demand, while crude and gasoline inventories also rose, the Energy Information Administration said.

“Inventories continue to build. This morning we had negative sales numbers. This is more economic weakness affecting demand,” said Tom Bentz of BNP Paribas Commodity Futures in New York.

U.S. crude was down $2.08 at $35.70 a barrel by 1618 GMT after earlier hitting a high of $39.45. London Brent crude fell 88 cents to $43.95 a barrel.

The inventory report added further pressure to prices after weak U.S. retail sales data sparked selling earlier in the session.

The U.S. Commerce Department said total retail sales fell 2.7 percent to a seasonally adjusted $343.2 billion last month. Analysts polled by Reuters had forecast December retail sales falling 1.2 percent.

“The retail sales figures are horrible. They confirm that the United States is in recession, which means oil demand is falling and so the market is weakening,” said Rob Laughlin, senior oil analyst at MF Global.

The global financial crisis, the worst since the 1930s, has pushed much of the industrialised world into recession, causing oil demand to slump and crude prices to tumble by more than $100 from its record peak of above $147 a barrel last July.

Oil producers in the Organization of the Petroleum Exporting Countries have responded to the recession by cutting output.

Top exporter Saudi Arabia said on Tuesday it was prepared to go even further than cuts it had made since December if the market warranted it, while OPEC’s secretary general said the group may reduce oil output again at its meeting in March.

Libya’s top oil official said on Wednesday OPEC’s existing oil output cuts should support oil prices and that it was too early to tell if a further production reduction.

OPEC decided to cut supply by 2 million bpd at meetings in September and October. In December, it agreed to lower output by a further 2.2 million bpd as of Jan. 1, a record reduction.

So far OPEC’s moves have had little obvious impact on the market and oil for prompt delivery is trading at a big discount to future barrels with the market in what is called a contango.

The front-month U.S. crude contract is also at a record discount to North Sea Brent crude futures with a spread of nore than $8 a barrel between the two contracts.

LONDON, Jan 14 (Reuters)