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UPDATE 3-Oil prices fall as U.S.-China trade war outweighs inventory drop

Shadia Nasralla

* Trump threatens fresh tariffs on Chinese goods

* U.S.-China trade talks continue this week

* U.S. inventories interactive graphic: https://tmsnrt.rs/2XfuQqn (Updates prices, adds comment, changes dateline)

LONDON, May 9 (Reuters) - Oil prices fell on Thursday as an escalating trade battle between the United States and China outweighed upward pressure from a surprise decline in U.S. inventories of crude.

Brent crude oil futures were at $69.72 a barrel by 0814 GMT, down 65 cents from their previous settlement and heading for their second consecutive weekly loss.

U.S. West Texas Intermediate (WTI) crude futures were at $61.43 per barrel, down 69 cents and set for a third week of losses.

"Concerns over the ongoing trade dispute between the United States and China weighed on markets," RBC's Al Stanton said in a note.

Heightened tensions between the world's two biggest economies cloud the outlook for global growth and thus oil demand.

U.S. President Donald Trump said on Wednesday that China "broke the deal" in trade talks with Washington and would face stiff tariffs if no agreement is reached.

Higher tariffs are set to take effect on Friday, during Chinese Vice Premier Liu He's two-day visit to Washington from Thursday.

"The oil market has come under renewed pressure this morning, with the hope of a China/U.S. trade agreement fading," ING said in a note.

"However, fundamentally the oil market remains constructive, with the global balance tightening, and still the potential for a number of supply-side risks."

Oil prices have had some support from signs of tighter global supply on the back of production cuts by the Organization of the Petroleum Exporting Countries and allies including Russia.

Brent and WTI have risen more than 30 percent so far this year.

Supplies have also been tightened by U.S. sanctions on OPEC members Venezuela and Iran.

An unexpected drop in U.S. crude inventories also kept price declines in check. U.S. crude oil stocks fell by 4 million barrels in the week to May 3, the Energy Information Administration said on Wednesday.

Barclays raised its third-quarter price forecasts for Brent and WTI by $4 per barrel to $74 and $67 respectively, on expectations of tighter market conditions.

(Additional reporting by Aaron Sheldrick in TOKYO and Jane Chung in SEOUL; Editing by Dale Hudson)