Global oil prices sank on Wednesday, as the largest weekly buildup of U.S. crude stocks in a year weighed further on a market already concerned that Washington's budget impasse would curb demand in the world's biggest oil consumer.

Data from the U.S. Energy Information Administration (EIA) showed U.S. crude inventories shot up nearly 7 million barrels last week, their largest weekly gain since September 2012, well above forecasts by analysts of a 1.5 million barrel increase.

The news sparked a selloff, pushing losses in both Brent and U.S. crude beyond $2 a barrel.

"We have higher production (in the United States) and imports were far more than we need," said Andy Lebow, vice president at Jefferies Bache in New York.

Earlier, oil prices edged lower after U.S. lawmakers made little progress toward ending the budget stalemate, though declines were limited by concerns that further unrest in Egypt and Libya could disrupt Middle East supply.

Brent crude fell $1.10 to settle at $109.06 per barrel, after settling higher on Tuesday for a third straight session. U.S. oil fell by $1.88 to $101.61 per barrel.

Steeper U.S. losses widened Brent's premium over the U.S. benchmark <CL-LCO1=R> to end the session at $7.45, up from $6.67 on Tuesday.

DOLLAR STRENGTH

News that Janet Yellen would be nominated as the next head of the U.S. Federal Reserve boosted the U.S. dollar from an eight-month low against major currencies. A strong U.S. currency makes dollar-denominated oil more expensive for holders of other currencies.

"The big build in supply caught the market by surprise," said Phil Flynn, an analyst at the Price Futures Group in Chicago, Illinois.

"The strong dollar today was a big part of the story as well."

Yellen is seen largely sticking to the policies of predecessor Ben Bernanke, aimed at keeping economic recovery on track.

U.S. President Barack Obama has invited House of Representatives Democrats to meet on Wednesday to discuss the budget crisis and a looming debt deadline, the first of a series of talks with lawmakers of both parties, a White House official said.

"A lot of people think you're going to see a default, so you're going to see a flight to quality and a lot of people will go to the dollar or to gold," said Mark Waggoner, president of Excel Futures in Bend, Oregon.

WEAKER DEMAND?

Clashes in Egypt and the capture by U.S. forces of a senior al Qaeda figure in Libya over the weekend raised the risk of disruptions to supply from key oil-producing areas in North Africa, offering some support to crude in recent days.

The International Monetary Fund (IMF) cut its world growth forecasts for the sixth straight time in less than two years, saying a stronger performance in the most advanced economies would not make up for sluggish expansion in the developing world.

U.S. crude inventories rose by 6.8 million barrels to 370.5 million last week, the EIA data showed. The largest build was recorded in the U.S. Gulf Coast region where oil stocks rose by 4.9 million barrels to 188.6 million barrels.

In its monthly report, the EIA said global oil markets would be better-supplied in 2014 than previously forecast. It saw oil demand growth next year at 1.17 million barrels per day, a fall of 20,000 bpd from the September forecast.

(By Anna Louie Sussman; Additional reporting by Lin Noueihed and Jacob Gronholt-Pedersen; editing by James Jukwey, Keiron Henderson and Matthew Lewis)