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UPDATE 6-Oil down as U.S.-China trade fears outweigh inventory drop

Collin Eaton

* Trump threatens fresh tariffs on Chinese goods

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

* U.S. inventories interactive graphic: https://tmsnrt.rs/2XfuQqn (New throughout, updates prices, market activity and comments)

HOUSTON, May 9 (Reuters) - Oil prices fell on Thursday as investors worried the United States and China could fail to reach a trade deal ahead of a Friday deadline, resulting in higher U.S. tariffs on Chinese imports that could hit economic growth and crimp crude demand.

The escalating trade battle between the world's two biggest economies has clouded the global economic outlook. Global equity markets also sank.

Brent crude oil futures fell 62 cents in seesaw trade to $69.75 a barrel by 10:06 a.m. CST, headed for their second straight weekly loss. U.S. West Texas Intermediate (WTI) crude futures fell 93 cents to $61.19 per barrel.

"A failure of the trade talks could lead to slower growth for oil demand," said Andy Lipow, president of Lipow Oil Associates in Houston.

U.S. sanctions on Venezuela and Iran, and threats to oil supplies in Nigeria in Libya have supported oil prices, mitigating the impact of the trade dispute, Lipow said. Earlier this week, data showing a surprise drop in U.S. crude inventories also buoyed prices.

Equities and oil prices could sink more if Washington and Beijing fail to strike a trade deal before Friday, which would raise U.S. tariffs on $200 billion of Chinese goods, said Bob Yawger, director of energy futures at Mizuho in New York.

"The whole day is going to be about the trade situation unless you get a headline that can stop the slide," said Yawger said.

On Wednesday, U.S. President Donald Trump said China "broke the deal" and would face stiff tariffs if no agreement is reached.

The U.S. tariffs on $200 billion of Chinese goods would rise to 25 percent without a deal on Friday. China has threatened to retaliate, triggering a flight to safety among investors.

Chinese Vice Premier Liu He's two-day visit to Washington starts Thursday.

Brent and WTI have risen more than 30 percent so far this year, supported by production cuts by the Organization of the Petroleum Exporting Countries and allies including Russia. U.S. sanctions on OPEC members Venezuela and Iran have also tightened global crude supply.

China's crude oil imports in April surged to a record despite refinery maintenance outages and tepid domestic fuel demand, customs data showed, as state-run refiners built up stocks of Iranian crude oil.

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.

(Additional reporting by Shadia Nasralla in LONDON; Aaron Sheldrick in TOKYO and Jane Chung in SEOUL; Editing by Dale Hudson, Jan Harvey, Kirsten Donovan and David Gregorio)