Oil prices declined by 2 percent Wednesday after U.S. government data showed rising domestic inventories of crude-oil and gasoline.

"The market looks a bit shaky," said BNP Paribas commodity futures broker Tom Bentz, noting that traders had expected crude-oil inventories to drop. Bentz said gasoline imports also looked strong.

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Prices began the day heading lower after former Federal Reserve Chairman Alan Greenspan said high energy costs are beginning to stunt U.S. economic growth. Greenspan added that the high price of oil has not produced any "serious erosion" of world economic activity.

Light sweet crude for July delivery fell $1.68 to settle at $70.82 a barrel on the New York Mercantile Exchange, where gasoline futures slid by more than 5 cents to settle at $2.124 per gallon. July Brent crude futures on London's ICE Futures exchange fell $1.62 to finish at $69.19 a barrel.

In its weekly petroleum report, the Energy Department said U.S. crude-oil stocks grew last week by 1.1 million barrels to 346.6 million barrels, or 4 percent above year ago levels. Gasoline inventories grew by 1 million barrels to 210.3 million barrels, or 2.5 percent below year ago levels. The commercial supply of distillates, which include heating oil and diesel, increased by 1.8 million barrels to 120.7 million barrels, or 8.5 percent more than a year ago.

On a week-to-week basis, the agency's report showed a slight decline in refinery output and gasoline demand. Over the past four weeks gasoline demand is 0.7 percent higher than it was during the same period a year ago.

Oil prices fell Tuesday on signs Iran was responding somewhat positively to a package of incentives by world powers hoping to curb its nuclear program.

Speaking on state television after receiving the latest proposal from EU foreign policy chief Javier Solana, Iranian nuclear negotiator Ali Larijani called the talks with Solana "constructive" and said Iran would respond after studying the incentives. "The proposals contain positive steps and also some ambiguities," Larijani said.

Despite the concerns about geopolitics, many analysts say the market remains well-supplied.

The Organization of Petroleum Exporting Countries decided last week in Caracas to leave its official ceiling unchanged at 28 million barrels a day. On Wednesday, OPEC President Edmund Daukoru, who is also Nigeria's oil minister, said the cartel was "not comfortable with current oil prices."

In other Nymex trading, natural gas futures settled 41.1 cents lower at $5.974 per 1,000 cubic feet.

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