UPDATE 10-Oil posts biggest yearly rise since 2016

* Benchmarks hit biggest annual gain in 3 years
* U.S. embassy guards in Baghdad fire stun grenades at
protesters
* Oil analysts bet on modest price gains in 2020 as supply
shrinks
* U.S. crude stocks fell in latest week -API

(Adds API data)
By Stephanie Kelly
NEW YORK, Dec 31 (Reuters) - Oil prices fell 1% on Tuesday,
the last trading day of the decade, but notched the biggest
annual gain in three years, supported by a thaw in the prolonged
U.S.-China trade war and ongoing supply cuts from major oil
producers.
Brent gained about 23% in 2019 and WTI rose 34%, their
biggest yearly gains in three years, backed by the recent
breakthrough in the trade talks and output cuts pledged by the
Organization of the Petroleum Exporting Countries (OPEC) and its
allies.
Forecasters do not expect oil prices to move sharply in
either direction next year. Brent crude is expected to hover
around $63 a barrel, a Reuters poll showed on Tuesday, down
modestly from current levels, as OPEC production cuts offset
weaker demand. Over the past year, increased U.S. oil output offset the
supply reductions undertaken by OPEC, led by Saudi Arabia and
stemming from U.S. sanctions on Venezuela and Iran. Lackluster
demand, including in developed economies, remains a primary
concern headed into 2020.
"Oil prices, though largely expected to trade positive, will
face headwinds from subdued global growth momentum and robust
U.S. shale output levels in the first quarter (of 2020)," said
Benjamin Lu, an analyst at Phillip Futures.
U.S. crude oil production in October rose to a record of
12.66 million barrels per day (bpd) from a revised 12.48 million
bpd in September, the U.S. government said in a monthly report.
The pace of growth is expected to slow in 2020. Brent crude LCOc1 fell 67 cents, or 1%, to settle at
$66.00 a barrel. U.S. West Texas Intermediate (WTI) crude CLc1
fell 62 cents, or 1%, to settle at $61.06 a barrel.
On Tuesday, trade volumes were low with many market
participants away for year-end holidays, amplifying the market's
moves.
U.S. President Donald Trump said the Phase 1 trade deal with
China would be signed on Jan. 15 at the White House.
Signs of progress on the deal had boosted China's
factory output and manufacturing activity in the country
expanded for a second straight month. China's Purchasing Managers' Index (PMI), which tracks
economic trends in the manufacturing and service sectors, was
unchanged at 50.2 in December from November, just above the
50-point mark separating growth from contraction.
Investors were nervous about the Middle East, where
thousands of protesters and militia fighters gathered outside
the U.S. embassy in Baghdad to condemn U.S. air strikes against
Iraqi militias. Security guards inside the U.S. embassy fired stun grenades
at protesters. The U.S. ambassador and staff were evacuated due
to security concerns.
"Considering that Iraq is the second-largest OPEC producer
with production around 4.6 million barrels per day, market
participants may add a risk premium to oil tension if tensions
last for longer," UBS oil analyst Giovanni Staunovo said.
"That said, we need to see if the latest protests spread
also in the south of the country, where most of the crude is
exported."
On Tuesday, data from industry group the American Petroleum
Institute showed U.S. crude oil stocks fell by 7.8 million
barrels in the week to Dec. 27, compared with analysts'
expectations for a draw of 3.2 million barrels. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
CHART: Brent oil may retest support at $66.19 https://tmsnrt.rs/2MJLKKS
CHART: U.S. oil may retest support at $61.09 https://tmsnrt.rs/35e3aWu
OPEC Production https://tmsnrt.rs/36aZvtY
Oil holds steady in 2019 despite supply shocks https://tmsnrt.rs/357uE08
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