News of massive inventory buildup in the United States sent oil prices tumbling yesterday, complicating the market confusion and volatility caused by persistent worries about the conflict in the Persian Gulf.

Reports of cheating and overproduction by OPEC members of at least 2 million barrels a day above the cartel's quota of 16.6 million barrels a day for the rest of the year also were depressing prices, analysts said.

Traders at the same time were aware any major political or military shift in the gulf could instantaneously drive up the prices as happened Monday in reaction to the weekend deaths of hundreds of Iranian and other pilgrims in Saudi Arabia.

On the New York Mercantile Exchange, the September contract for West Texas intermediate, the benchmark U.S. crude, settled at $21.29 a barrel, down 68 cents from Tuesday.

Unleaded regular gas for September delivery on the Merc fell 0.92 cent to 54.98 cents a gallon, while No. 2 heating oil dropped 0.91 cent to 55.49 cents a gallon.

On the European markets, Britain's North Sea Brent crude lost 75 cents a barrel to $19.80. Dubai light crude, the benchmark OPEC crude, fell 30 cents to $18.10 a barrel.

September prices for No. 2 heating oil, a more important yardstick for measuring European price movements, settled at 52.75 cents a gallon, down 1 cent from 53.75 cents on Tuesday.

There were concerns that crude prices could fall further if the uneasy calm in the gulf continued without serious supply disruption while overproduction and inventory buildup went on uninterrupted.

"The market is in a terrible dilemma," said Edward Krapels, president of Energy Security Analysis, Inc., a Washington market research firm. "It knows there is a high probability of disruptive events {in the gulf}. But the other part of the dilemma is that this high price is encouraging inventory buildups and that in the long run will force the prices to come down significantly."

Traders said the massive selloff came in response to the weekly stock report issued late Tuesday by the American Petroleum Institute, which indicated huge stock buildups in the country.

The API said the U.S. crude oil imports rose significantly to 6.1 million barrels daily for the week ended July 31, from 5.3 million barrels daily in the prior week. Those figures were substantially above year-ago imports of 4.5 million barrels daily.

Crude oil inventories increased to 328.4 million barrels from 321.6 million barrels a week earlier. Product imports for the week also increased substantially to 2.5 million barrels daily from 2 million barrels in the prior week.

"The API report was extremely negative, saying the buildup was huge, much much more than expected for the week," said one trader. "It indicated that people are buying the heck out of the market in anticipation of trouble in the Middle East and supplies being cut. It is a very risky situation."

Larry Goldstein of the Petroleum Industry Research Associates in New York said if there is no immediate flareup in the Middle East, the excess production and feverish buying are affecting current prices