Aug. 23 (Bloomberg) -- Crude oil fell more than $1 a barrel and gasoline plunged after an Energy Department report showed an unexpected increase in U.S. inventories of the motor fuel.

Stockpiles rose 402,000 barrels to 205.8 million last week, the report showed. A decline of 2.05 million barrels was expected, according to the median of 14 forecasts in a Bloomberg News survey. Crude oil supplies fell less than forecast and inventories of distillate fuels, a category that includes heating oil and diesel, jumped more than expected.

``A build in gasoline supplies at this time of year is very bearish because it's unexpected,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. ``Strong imports and solid domestic production have been more than enough to meet our 9.6 million barrels of demand.''

Crude oil for October delivery fell $1.34, or 1.8 percent, to close at $71.76 a barrel on the New York Mercantile Exchange. Prices have jumped 18 percent this year, partly on concern that Iran, the fourth-biggest oil producer, may curb shipments because of a dispute over its nuclear program.

Gasoline for September delivery declined 7.99 cents, or 4.1 percent, to $1.8594 a gallon in New York, the lowest close since March 27. Prices are little changed from a year ago.

Gasoline consumption over the past four weeks averaged 9.6 million barrels a day, up 1.7 percent from a year earlier, the department said.

Strong Gasoline Demand

``The only bullish thing in the report was the strong gasoline-demand number, but that's not a worry given the supplies available,'' said Aaron Kildow, a broker at Prudential Financial Derivatives LLC in New York. ``It looks like this market is over- supplied and prices are responding. The only question now is how soon the fall in futures will be reflected in retail prices.''

Regular gasoline, averaged nationwide, is up 12 percent from a year ago, according to AAA, the nation's largest motorist organization. Gasoline declined 1.1 cent yesterday to an average $2.912 a gallon. Prices reached a record $3.057 in early September, after Hurricane Katrina shut refineries and platforms along the Gulf of Mexico.

``On average supplies fall 1.8 million barrels during this week and last year they plunged 3.2 million,'' Evans said.

Gasoline inventories were 1.6 percent above the five-year average for the week, the Energy Department said. Stockpiles were unchanged from the five-year average a week earlier. Crude oil, diesel and heating-oil inventories are also above the five-year average, according to the department.

Crude oil supplies fell 643,000 barrels to 330.4 million in the week ended Aug. 18, the report showed. Analysts expected inventories to fall 1.35 million barrels. Distillate stockpiles jumped 2.31 million barrels to 135.5 million, more than triple the forecast.

Prudhoe Bay

On Aug. 18, BP Plc, operator of the Prudhoe Bay oil field, said the field was producing more than 200,000 barrels of oil a day, primarily from its western part, about half its capacity. The eastern side of the project remained mostly shut because of corrosion in pipes in the field, the largest in the U.S. BP first said on Aug. 7 that the entire field would be shut.

``Despite the problems in Prudhoe Bay we haven't had big declines in crude-oil stocks,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York.

Iran's Uranium Enrichment

Iran's response to a European Union-led offer of incentives aimed at persuading it to stop enriching uranium ``falls short'' of the conditions set by the United Nations Security Council, a U.S. State Department spokesman said today.

``We are consulting closely, including with other members of the Security Council, on next steps,'' the e-mailed statement by acting spokesman Gonzalo Gallegos said. Gallegos said the U.S. acknowledges ``that Iran considers its response as a serious offer, and we will review it.''

France wants Iran to stop uranium enrichment before negotiations on its nuclear program can resume, French Foreign Minister Philippe Douste-Blazy said today. Iran said yesterday it is ready to hold ``serious negotiations'' on the program, without saying whether it will stop enriching uranium, as demanded by the Security Council.

``The French are talking tough and seem to be standing with the U.S. and U.K.,'' said Phil Flynn, vice president of risk management at Alaron Trading Corp. in Chicago. ``We now have to see if China and Russia join in the tough line.''

The Permanent Five

The U.S., U.K., France, Russia and China are the Security Council's five permanent members, each with a veto over resolutions.

``It looks like Tehran has been able to throw the ball back in the UN's court,'' Barakat said. ``They have probably split the coalition members, which makes any action less likely. Russia and China show no sign of wanting to impose sanctions.''

China and Russia are working with Iran on major energy projects and have expressed caution about imposing strict sanctions, insisting on the need to pursue negotiations with the Islamic republic.

Brent crude oil for October settlement declined $1.22, or 1.7 percent, to close at $72.02 a barrel on the London-based ICE Futures exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

Last Updated: August 23, 2006 15:23 EDT