Oil prices fell on Wednesday as a big rise in U.S. crude inventories and the prospect the United States and some European nations might tap strategic reserves sent futures into retreat.

U.S. crude stocks rose by 7.1 million barrels last week, the Energy Information Administration said, more than forecast.

Gasoline inventories declined by a more-than-expected 3.54 million barrels and distillate stocks fell 700,000 barrels.

It's a battle of the headlines that makes for a mostly bearish report, said John Kilduff, a partner at Again Capital LLC.

The large gain in crude oil inventories is countered by the large decline in motor gasoline, but the sizable uptick in the refinery utilization argues for more product increases in coming reports, Kilduff added.

Ahead of the inventory data, the prospect of a release of strategic oil reserves from the United States and some European nations pressured oil.

France is in contact with Britain and the United States on a possible release of strategic oil stocks to push fuel prices down, Le Monde daily said, citing presidential sources.

A release of strategic oil stocks is a matter of weeks, the French newspaper said.

Brent crude fell $1.38 to settle at $124.16 a barrel, having dropped to $123.53 intraday, testing below the 30-day average of $123.87.

U.S. crude slipped by $1.92 to settle at $105.41 a barrel, below the 30-day average of $106.32 and having fallen as low as $104.67.

Even with the day's losses, Brent was on pace to post a 15 percent rise for the quarter, with U.S. crude up more than 6 percent.

Brent's premium to U.S. crude increased slightly to $18.75 based on settlements, having edged above $19 a barrel intraday.

Trading volumes exceeded half a million lots for both Brent and U.S. crude, and Brent neared its 30-day average. U.S. dealings were 17 percent below the 30-day average.

Worries about the health of the U.S. economy also helped keep oil prices pressured.

New orders for U.S. durable factory goods rose less than expected in February and a gauge of future business investment also fell short of forecasts.

Traders and analysts said some additional pressure on commodities may have come from Goldman Sachs saying it was shifting its recommendation on commodities to neutral from overweight on a near-term horizon, as most commodity markets including copper, crude oil and soybeans have reached the brokerage's near-term targets.

The 19-commodity Thomson Reuters-Jefferies CRB index <.CRB> fell 1.26 percent.


ANALYSIS-Libya's oil contracts to be unsure for months more

FACTBOX-US Congress mulls more Iranian penalties

PDF of Iran reports: http://link.reuters.com/duf27s



Rising tensions between Iran and the West over Tehran's nuclear program have kept oil prices elevated this year, with additional support provided recently from production problems in the North Sea and reported attacks on oil-producing areas in South Sudan.

Iran expects to reopen talks with world powers on April 13 in an effort to defuse increasing tensions, Iranian Foreign Minister Ali Akbar Salehi said.

Traders have been monitoring the possibility of a strategic oil reserves release since prices began rising on the implications of European Union sanctions on Iran's oil exports, slated to be implemented in July.

Saudi Oil Minister Ali al-Naimi blasted irrationally high oil prices in an opinion piece in the Financial Times, but offered no sign that the kingdom was moving to boost output.

Naimi largely reiterated comments he made a week ago, saying there was no shortage of supply but that Saudi Arabia remained ready to use its spare production capacity to supply the oil market with any additional required volumes.

With Iran's oil exports facing the threat of tightening sanctions, Saudi Arabia is expected to have a record 140 oil and gas rigs operating by the end of the year, industry sources said.

(Additional reporting by Simon Falush and Alex Lawler in London and Florence Tan in Singapore; Editing by David Gregorio and Dale Hudson)