UPDATE 8-Oil falls 1% despite large U.S. stockpile decline

* U.S. crude stocks drop by nearly 11 mln bbls -EIA
* Kuwaiti, Saudi officials talk Neutral Zone oil production
-KUNA
* Sluggish demand outlook weighs on prices

(Updates with settlement prices, adds market activity,
commentary)
By Stephanie Kelly
NEW YORK, July 24 (Reuters) - Oil prices fell 1% on
Wednesday, failing to draw lasting support from a large decrease
in U.S. crude stockpiles as investors worried about global oil
demand.
Brent crude LCOc1 futures dropped 65 cents, or 1%, to
settle at $63.18 a barrel, while U.S. West Texas Intermediate
(WTI) crude CLc1 futures fell 89 cents, or 1.6%, to settle at
$55.88 a barrel.
Earlier in the session, the front-month Brent contract
LCOc1 flipped to trade at a discount to the second-month
contract LCOc2 , a market structure known as contango, for the
first time since March. Sentiment in the oil market has darkened
as investors worry that slowing global economic growth will
weaken demand for oil.
On the supply side, OPEC members Saudi Arabia and Kuwait
have discussed resuming oil production in jointly operated
fields in the Saudi–Kuwaiti Neutral Zone, Kuwaiti state news
agency KUNA said on Wednesday. The two countries halted output from the oilfields - Khafji
and Wafra - more than four years ago, cutting some 500,000
barrels per day, or 0.5 percent of global oil supply.
Oil prices initially rose after Energy Information
Administration data on Wednesday showed a large drawdown in U.S.
crude stockpiles. Crude inventories USOILC=ECI fell by 10.8
million barrels in the week to July 19. Analysts expected a
decrease of 4 million barrels. But the gains did not hold.
"The market is going to try to say that (the drawdown) was
probably due to (Hurricane Barry), and so the market is not
overreacting to it," said Phil Flynn, an analyst with Price
Futures Group in Chicago.
U.S. oil companies cut some production in the Gulf of Mexico
ahead of Hurricane Barry, which came ashore in Louisiana earlier
this month. Meanwhile, investors eyed heightened tensions in the Middle
East.
A U.S. Navy ship took defensive action against a second
Iranian drone in the Strait of Hormuz last week but did not see
the drone go into the water, the U.S. military said on Tuesday.
Iran's president, Hassan Rouhani, said on Wednesday his
country was ready for "just" negotiations but not if they meant
surrender. Also fueling tensions, Britain gained initial support from
France, Italy and Denmark for its plan for a European-led naval
mission to ensure safe shipping through the Strait of Hormuz
following Iran's capture of a British-flagged tanker.
The military adviser to Iran's supreme leader was quoted on
Wednesday as saying that any change in the status of the Strait
of Hormuz, which Tehran says it protects, would open the door to
a dangerous confrontation. "We are not expecting much bullish assistance from this
week's rising tensions in the Persian Gulf, at least until a
significant amount of physical oil supply is disrupted," Jim
Ritterbusch of Ritterbusch and Associates said in a note.

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U.S. crude inventories, weekly changes since 2017 png https://tmsnrt.rs/2XlX17b
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