Oil falls 1 percent as Wall Street drags

NEW YORK (Reuters) - Oil prices dropped 1 percent on Wednesday as heavy losses on Wall Street outweighed the impact of a government report showing a surprise drop in U.S. crude and gasoline stockpiles.

U.S. crude fell 60 cents to $58.25 a barrel by 1:30 p.m. EDT (6:30 p.m. British time), off a six-month peak above $60 hit earlier this week. London Brent fell 56 cents to $57.38.

The losses came as worse-than-expected U.S. retail sales data blurred the economic outlook and plunged U.S. stock markets about 2 percent. <.N>

Oil prices have been tracking equities markets closely in recent months as traders look to stocks for signs of an economic recovery that could lift ailing world fuel demand.

Adding to losses, the Organisation of Petroleum Exporting Countries forecast that world oil demand in 2009 would be even weaker than previously thought. The group said members relaxed production slightly in April.

Oil's losses came despite a report from the U.S. Energy Information Administration showing crude inventories in the world's top energy consumer fell by 4.7 million barrels, defying expectations for a 10th straight weekly build.

"The amazing run over the last months on building crude stocks had to come to an end," said Phil Flynn, analyst at Alaron Trading in Chicago.

Oil has plunged from a record high above $147 a barrel hit last July, but a rally in stock markets during the last few months has helped lift crude almost 80 percent from a January low of $32.70 a barrel.

(Reporting by Richard Valdmanis; Editing by David Gregorio)

(Additional reporting by Alex Lawler in London and Jennifer Tan in Singapore; Editing by David Gregorio)

Article Published: 13/05/2009