Oil falls $4, shrugs off U.S. supply drop

By Richard Valdmanis

NEW YORK (Reuters) - Oil prices dropped $4 on Thursday as concerns about global energy demand and strength in the dollar countered a government report showing the biggest decline in U.S. stockpiles since 2004.

U.S. crude settled down $4.41 at $126.62 a barrel, while London Brent gave up $4.04 to $126.89 a barrel.

The decline extends oil's retreat from last week's record above $135 a barrel amid growing signs that global energy demand growth is slowing under the strain of high costs and economic turmoil in the United States.

Gains in the U.S. dollar after a report that the U.S. economy grew in the first quarter at a faster pace than previously estimated added pressure to commodity markets by diminishing the purchasing power of buyers using other currencies.

Oil's slump also came as the top U.S. futures market regulator said it will step up surveillance of energy trading, tracking index funds and reaching across the Atlantic to grab more information on oil contracts based on American crude that are traded in the United Kingdom.

U.S. lawmakers had hammered the Commodity Futures Trading Commission for months to improve monitoring and to crack down on speculators whom they blame for pushing up energy prices to record levels.

Oil had briefly surged into positive territory Thursday morning after the U.S. Energy Information Administration released a report showing an 8.8 million-barrel drop in U.S. crude stockpiles, the biggest fall since a hurricane shut offshore oil platforms in September 2004.

The unexpected decline "was due to temporary delays in crude oil tanker off-loadings on the Gulf Coast," EIA said.