NEW YORK (CNNMoney.com) -- Oil prices slid for the third straight day Wednesday after the government said gasoline and crude supplies posted a surprisingly big jump last week.

U.S. light crude for August delivery fell 88 cents to settle at $72.66 a barrel on the New York Mercantile Exchange. Crude was down 24 cents at $73.30 just prior to the report.

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In its weekly inventory report, the Energy Information Administration said crude stocks rose by 200,000 barrels. Analysts were looking for a 500,000 barrel decline, according to Reuters.

Gasoline supplies added 1.5 million barrels while distillates, which are used to make diesel fuel and heating oil, rose by 1.2 million barrels. Analysts were looking for a 700,000 barrel drop in gas stocks and a 1.6 million barrel build in distillate supplies.

The report said supplies of all three products are at above-average levels for this time of year, especially crude, which it described as "well above the upper end of the average range."

Wednesday marks the third day in a row that oil prices have fallen after hitting a record trading high of $78.40 Friday, bringing its loss over that period to more than 7 percent.

Oil prices plunged well over a dollar late Tuesday after Secretary of State Condoleeza Rice said there should be a cease fire between Israel and Hezbollah as soon as possible, although she also said conditions had to be conducive.

While neither Israel nor Lebanon produces much oil, apprehension abounds that the conflict will spread to the broader region, which produces 30 percent of the world's oil and holds 60 percent of its reserves.

Rice is to go to the United Nations Thursday to discuss the Middle East with U.N. Secretary General Kofi Annan, but no time has been set for a possible trip by Rice to the region.

On Wednesday there was little sign that diplomacy would bring an end to the violence, as Israel unleashed fierce air strikes on Lebanon, killing 46 civilians and a Hezbollah fighter.

Francisco Blanch, head of commodity research at Merrill Lynch, said supply and demand factors would reassert themselves, even though the situation in the Middle East was helping to drive volatility on commodity markets.

Looking beyond the immediate term, Blanch told Reuters: "Our call is for prices to decline towards the mid-60s, but we don't think (U.S. crude) and Brent are going to collapse."

"The fact is the crude oil market is well supplied," he added, although he said gasoline stocks were relatively tight.

Blanch also noted oil was continuing to flow from Syria and Iran, regarded as allies of Hezbollah.

OPEC member Iran, which funded and supplied Hezbollah during the 1980s but has denied providing weapons in the latest round of violence, is already a focus for international tension because of a dispute with the West over its nuclear program.

Last week hopes of a breakthrough with Iran were dashed after the country failed to respond to an incentive package intended to curb its nuclear development and was referred to the United Nations Security Council for possible sanctions.

The impasse helped drive oil prices higher on fears Iran would respond to any sanctions by curtailing its oil exports.

On the OPEC front, cartel President Edmund Daukoru said Wednesday that current price levels risk damaging the world economy.

"If it would have stabilized around the mid-60s, I don't think people would complain too much. We are getting used to that, but the latest shootup to the mid-70s and above is very uncomfortable," Daukoru told Reuters.

Daukoru, who is also Nigeria's minister of state for oil, is traveling to the Middle East Gulf next week to address internal OPEC issues as well as the oil market situation.

-from staff and wire reports

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