[LONDON] Oil prices fell on Wednesday, reversing earlier gains, as a modest rise in US output overshadowed a hefty drop in crude inventories in the world's top consumer.

Investor sentiment was also dented by gloomy Chinese manufacturing data, which stoked fresh concern over oil demand in the Asian powerhouse.

US benchmark West Texas Intermediate for delivery in November sank US$1.29 to US$45.07 a barrel compared with Tuesday's close.

Brent North Sea crude for November delivery slid 76 cents to stand at US$48.32 a barrel in late afternoon London deals.

The US government's Department of Energy (DoE) reported that American commercial crude inventories sank by 1.9 million barrels in the week ending September 18.

That indicated stronger-than-expected demand for crude in the world's top oil consuming nation.

Market expectations had been for a lighter drop of 1.25 million, according to analysts polled by Bloomberg News.

However, the DoE also revealed that American oil output rose by 19,000 barrels per day (bpd) to 9.136 million bpd, snapping a six-week run of falls.

"The increase in oil production is the only new bearish factor in the oil markets right now, apart from the weak Chinese manufacturing numbers that were released earlier today," said Natixis analyst Deshpande Abhishek.

The weekly DoE report is a closely-watched barometer of demand in the world's biggest economy.

Oil also retreated after a vital measure of manufacturing in China fell to its lowest level in more than six years, signalling weaker demand in the world's top energy consumer.

The prospects of weaker demand come as the oversupplied global oil market is already troubled by expectations Iranian crude will return within months if Tehran is found to have complied with a deal to curb its nuclear ambitions.

"Crude oil prices were weighed by a double whammy of increasing prospects of the return of Iranian oil on the market, as well as potential fall in demand from China after the Chinese flash Purchasing Managers' Index (PMI) fell to a six-year low," said IG Markets analyst Bernard Aw.

The closely watched PMI for Chinese factory activity came in at 47 in September, down from August and the lowest since March 2009.

A result below 50 indicates the manufacturing sector is contracting, while anything above shows expansion.

Traders are closely watching the progress on Tehran's compliance over its deal with world powers that would see the lifting of sanctions, allowing it to export more oil.

Iran on Monday said it had independently collected samples at a suspect military site where illicit nuclear work is alleged to have occurred and later handed them to UN inspectors who were not physically present.

AFP