* Fund selling hits a number of commodities
* Saudi Arabia to produce more crude in Q2-sources
* US crude stocks seen up, refined products seen down-poll
* Coming Up: API oil stocks data 4:30 p.m. EST Wednesday (Releads, updates prices, adds details and analyst comment)
By Robert Gibbons
NEW YORK, Feb 20 (Reuters) - Crude oil futures fell sharply on Wednesday, joining in a sell off hitting precious metals and copper, as selling accelerated amid market talk that a hedge fund was forced to liquidate substantial positions.
Oil entered into a steep decline that dropped prices by more than $2 per barrel over a 20 minute period that started just before 11 a.m. EST and included several volumes spikes, as several traders cited rumors that a hedge fund had been forced to sell out of positions across several commodities.
Exiting of long positions built up during the recent rally and the triggering of sell-stop orders accelerated the slide as the U.S. March crude contract approached expiration at the end of the day's session, brokers and traders said.
"It's called long liquidation out of what had become a crowded trade," said Tim Evans, energy futures specialist at Citi Futures Perspective in New York.
Evans added that it was unlikely the market could correct, in a single session, weeks of money managers adding to their net long positions in crude futures and options positions.
Precious metals faltered, with gold hitting a seven-month low and platinum, palladium and silver falling more than 3 percent. Copper prices fell to their lowest in more than a month.
The 19-commodity Thomson Reuters-Jefferies CRB index was down 0.85 percent and fell to the lowest level since Jan. 11 during the session.
Expectations that Saudi Arabia intends to raise its production in the second quarter to meet higher demand from China and nurture global economic recovery weighed on oil prices, as did data showing U.S. housing starts slumped 8.5 percent in January.
Brent April crude fell $2.10 to $115.42 a barrel by 1:40 p.m. EST (1847 GMT), having dropped as low as $115.05 after reaching $117.66.
Expiring U.S. March crude was down $2.62 at $94.04 a barrel, having swung from $93.92 to $97.07. U.S. April crude was down $2.63 at $94.47 a barrel, having slumped as low as $94.21.
U.S. March RBOB gasoline also fell sharply, slumping nearly 9 cents, more than 2 percent, while March heating oil retreated more than 3 cents.
SHIFTING SUPPLY PICTURE
After Saudi Arabia cut production by about 700,000 barrels per day (bpd) in the last two months of 2012, tightening supply and supporting oil prices, oil industry sources said the world's top crude oil exporter expects to lift output, although the amount of the production boost was not specified.
Supply also is rising in the United States, where weekly oil inventory reports from industry and government are expected to show a build in crude stockpiles. Refined product inventories are expected to have declined.
Expectations that a supply glut in the U.S. Midwest could persist were reinforced by news on Tuesday that the throughput on the Seaway crude oil pipeline from Oklahoma to the Gulf Coast will remain below its 400,000-bpd capacity through May.
Seaway was expanded this year as operators aimed to divert crude from bloated tanks in Cushing, Oklahoma, the delivery point for the U.S. light sweet crude contract. (Additional reporting by Eileen Houlihan and Cezary Podkul in New York, Simon Falush and Dasha Afanasieva in London and Florence Tan in Singapore; Editing by Bob Burgdorfer)