U.S. crude for October delivery settled down $2.78, or 3.8 percent, at $69.96 a barrel, having fallen as low as $69.13 in intraday trade. In London, Brent crude settled down $3.14 at $69.65 a barrel.

China’s key stock index dived 6.74 percent on Monday to a three-month low, prompted by concern that China’s government is trying to moderate economic growth and choke off some speculation in its stock market by tightening bank lending.

European equities closed lower and U.S. stocks fell after China’s index fall.

“The oil markets have been strongly affected by what’s going on in China, where the fear is that authorities will rein in on lending and in the process curtail growth,” said Phil Flynn, an analyst at PFGBest Research in Chicago

Jitters about the Chinese economy, the world’s second largest oil consumer, also weighed on other Asian stock markets.

The Organization of the Petroleum Exporting Countries meets to review output on Sept. 9 in Vienna. Several ministers and officials from the group have said it is likely to leave output targets unchanged.

Even though OPEC agreed to 4.2 million barrels per day of supply curbs late last year, and has kept output targets steady so far in 2009, actual production has been rising in recent months, according to industry surveys.

In a further sign of that trend, Abu Dhabi, the main producer in the United Arab Emirates, an OPEC member, will lift supply to Asia in October, the state oil firm said on Saturday.

Despite the indications of higher supply from some in OPEC, oil has rallied from a low of $32.40 in December, the weakest price in nearly five years, to a 2009 high of $75 a barrel last week.

Aug 31 (Reuters)

Oil slipped further below $36 a barrel on Thursday as worries over the health of the global economy and forecasts for a hefty fall in global energy demand weighed on sentiment.

Global economic downturn is taking its toll on oil consumption and supply still appears to be outstripping demand in many parts of the world, despite production cuts by members of the Organization of the Petroleum Exporting Countries.

Oil prices continued to weaken despite a deal in the U.S. Congress on Wednesday on $789 billion in new spending and tax cuts.

U.S. light crude for March delivery was down 54 cents at $35.40 at 1124 GMT.

London Brent crude was up 21 cents at $44.49, stretching its premium over U.S. oil to near the record levels above $9 hit last month.

Traders said the short-term direction of the market was being dominated by movements in stock markets, which opened lower in Europe on Thursday, and the dollar, which rose against a basket of major currencies.

“Overall the market appears to be slipping,” said a dealer at a large London brokerage. “Oil demand is falling and a lot of attention is being paid to macro-economic data.”

U.S. JOBLESS

Traders awaited U.S. weekly jobless claims and January retail sales data due at 1330 GMT on Thursday, which will give a clearer indication of how the U.S. economy is faring.

Oil has tumbled around 10 percent this week, having fallen four sessions in a row since last Friday, on demand worries and fears the U.S. bank rescue plan would not go far enough to revive the ailing financial sector.

Oil prices took a battering on Wednesday after the U.S. Energy Information Administration said domestic crude stocks had increased 4.7 million barrels to 350.8 million in the week to Feb. 6, against a forecast for a rise of 3.1 million.

The latest increase in U.S. crude stocks comes on the heels of a combined rise of more than 13 million barrels in the prior two weeks, and crude inventories are now moving significantly above their five-year range.

Oil’s losses were further exacerbated by a separate report from the International Energy Agency forecasting global demand to contract by nearly a million barrels per day (bpd) — the most since 1982 — to 84.7 million bpd in 2009.

Underlining the damage caused by the global financial crisis, data showed global trade activity in goods and commodities had dropped.

The March Brent ICE futures contract expires on Thursday and traders said they expected the premium for Brent over U.S. crude futures, also known as WTI, to stretch further, reflecting very high stock levels at Cushing, the delivery point for the U.S. futures contract.

“We are probably going to see WTI maintain or worsen its discount to Brent,” said Harry Tchilinguirian, analyst at BNP Paribas in London.

LONDON, Feb 12 (Reuters)