Oil prices dropped on the build in the US stockpiles and expectations of warmer weather in the US Northeast towards the end of the month.

February crude fell $0.71 to $46.84 a barrel.

The Energy Information Administration issued a report on Wednesday saying the US crude stocks added 3.4 million barrels, taking them to levels that are 8% above last year in the biggest gain since Oct. 29.

"Stocks were a bit of a surprise, they’re not normally rising at this time of year," said David Thurtell at Commonwealth Bank of Australia in Sydney.

Heating oil supplies are down 500,000 barrels, but the deficit over last year shrank to just 4% in the wake of warmer winter weather.

``People now feel we can get through the winter’’ without running short of heating fuel, said Anthony Nunan, manager of international petroleum business at Mitsubishi Corp. in Tokyo. Inventories ``are enough to meet demand.’’

U.S. refineries slowed down production as the producers are closing units to get ready for seasonal maintenance work.

Another factor that contributed to the price rise is the concern that OPEC may decide to cut output in its January 30 meeting.

Adding to the worries about supply are the production stability concerns in Iraq where militants have stepped up violence in anticipation of the elections that are also scheduled for January 30.