Oil prices have fallen sharply as weak US home sales data and high US oil inventories prompted doubts about a potential recovery in fuel demand.

US light, sweet crude fell $3.08 to $65.89 a barrel while London Brent crude slipped $3.17 to $64.82.

Stockpiles of crude rose by 2.8 million barrels in the week to 18 September. Analysts expected a 1.5 million fall.

Meanwhile a fall in existing home sales added to worries about fragility in the US housing recovery.

The National Association of Realtors said sales fell 2.7% to an annual rate of 5.1 million last month, down from an annual rate of 5.24 million in July.

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

Many companies have cut back on production while individuals have limited travel and been more conscious of domestic use.

Oil prices are well off their lows of about $33 seen in December but are still more than half the $147 highs of July 2008.