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Oil has steepest drop in a month as economic concerns threaten demand
[NEW YORK] Oil prices fell more than 2 per cent on Thursday, with Brent slipping back from four-month highs as investors focused on the risk that emerging market crises and trade disputes could dent demand even as supply tightens.
The International Energy Agency warned that although the oil market was tightening at the moment and world oil demand would reach 100 million barrels per day (bpd) in the next three months, global economic risks were mounting.
"As we move into 2019, a possible risk to our forecast lies in some key emerging economies, partly due to currency depreciations versus the US dollar, raising the cost of imported energy," the agency said.
"In addition, there is a risk to growth from an escalation of trade disputes," the Paris-based agency said.
Brent crude oil fell US$1.56, or 2 per cent, to settle at US$78.18 per barrel. The global benchmark on Wednesday hit US$80.13, its highest level since May 22.
US light crude settled down US$1.78, or 2.5 per cent, at US$68.59 a barrel.
Both benchmarks marked their biggest single day percentage drop in almost one month.
The market tumbled early in the session as investors focused on the bearish elements of the IEA report, said Bob Yawger, director of energy futures at Mizuho in New York.
Prices slipped again after US President Donald Trump said in a tweet that the United States was under no pressure to make a trade deal with China, Mr Yawger said.
US companies in China are being hurt by mounting trade tensions between Washington and Beijing, according to a survey, prompting US business lobbies to urge the Trump administration to reconsider its approach.
The White House has invited Chinese officials to restart trade talks as it prepares to escalate a trade war with China with tariffs on US$200 billion worth of Chinese goods.
US Energy Secretary Rick Perry praised members of the Organization of the Petroleum Exporting Countries and Russia for their work in preventing a spike in oil prices during a visit to Moscow.
Oil prices were up on the week, buoyed in earlier sessions by a larger-than-expected draw in US crude inventories, weakness in the US dollar and a reported fall in US production, Commerzbank said in a note.
US crude production fell by 100,000 bpd to 10.9 million bpd last week as the industry faces pipeline capacity constraints.
Though weekly output slipped, the United States likely surpassed Russia and Saudi Arabia earlier this year to become the world's largest crude oil producer, based on preliminary estimates from the Energy Information Administration.
Although the EIA does not publish crude production forecasts for Russia and Saudi Arabia in its short term outlook, it expects that US output will continue to exceed Russian and Saudi production for the remaining months of 2018 and through 2019.