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UPDATE 7-Oil falls ahead of hurricane but set for weekly gain as trade row eases

eases@

* Brent set for weekly rise of 1.6%, WTI up 0.9%

For the month, Brent set for 7.4% drop, WTI down 6.3%.

* Hurricane headed for Florida may hit oil demand

* OPEC posts first 2019 oil-output rise despite Saudi cuts

* Coming Up: Weekly U.S. oil rig count at 1 p.m. (1700 GMT) (Updates prices, market activity, adds commentary; changes byline, dateline, previous LONDON)

By Stephanie Kelly

NEW YORK, Aug 30 (Reuters) - Oil futures fell on Friday, with U.S. crude down nearly 4% ahead of a hurricane near the Florida coast that could dampen demand, but prices were still headed for the biggest weekly increase since early July, boosted by an easing of U.S.-China trade rhetoric.

Brent crude futures fell 79 cents, or 1.3%, to $60.29 a barrel by 11:20 a.m. EDT (1520 GMT). U.S. West Texas Intermediate (WTI) crude futures fell $2.09, or 3.7%, to $54.62 a barrel.

Hurricane Dorian gained strength as it crept closer to Florida's coast on Friday, raising the risk that parts of the U.S. state will be hit by strong winds, a storm surge and heavy rain for a prolonged period after it makes landfall early next week.

"The latest modeling has Hurricane Dorian avoiding the Gulf of Mexico, while raking the entire state of Florida, turning it into a demand destruction event for the energy market rather than a supply disruption event," said John Kilduff, a partner at Again Capital in New York.

Meanwhile, the Organization of the Petroleum Exporting Countries' oil output rose 80,000 barrels per day in August, the first monthly increase this year, a Reuters survey found.

OPEC, Russia and other non-members, an alliance known as OPEC+, agreed in December to reduce supply by 1.2 million bpd in 2019. Russia's oil output in August was slightly higher than levels agreed under its output deal with OPEC+, but Moscow is still aiming to fully comply with the deal, RIA and Interfax news agencies cited Energy Minister Alexander Novak as saying.

Oil prices have fallen by around 20% since they hit a 2019 peak in April, in part because of concerns that the U.S.-China trade war could hurt the global economy and soften demand for oil.

In August alone, Brent was set for a monthly drop of 7.4%, and WTI was on track to lose 6.3%.

This week, however, WTI is set to rise 0.9% and Brent by 1.6%, in part due to hopes that trade tensions between the world's two biggest oil consumers are easing.

Chinese and U.S. trade negotiating teams are maintaining effective communication, China's Foreign Ministry said on Friday at a daily news briefing in Beijing.

On Thursday, the United States and China gave signs that they will resume trade talks, discussing the next round of in-person negotiations in September ahead of a looming deadline for additional U.S. tariffs.

"Recession fears are casting a shadow on sentiment and oil prices should keep dancing to the tune of the U.S.-China trade saga," said Stephen Brennock of oil broker PVM.

Analysts polled by Reuters slashed their price forecasts for Brent to an average of $65.02 in 2019 - the lowest in more than 16 months - citing softening global demand brought on by an economic slowdown and the trade row.

(Additional reporting by Aaron Sheldrick;Editing by Marguerita Choy and David Evans)