UPDATE 9-Oil falls over 3% on fresh trade worries, posts biggest monthly drop in six months

* Trump vows import tariffs on Mexican goods
* U.S. already in trade war with China
* Analysts fear trade conflict will weigh on oil demand
* U.S. drillers cut oil rigs for sixth straight month-Baker
Hughes

(Adds CFTC data)
By Stephanie Kelly
NEW YORK, May 31 (Reuters) - Oil slumped over 3% on Friday
and posted its biggest monthly drop in six months, after U.S.
President Donald Trump stoked global trade tensions by
threatening tariffs on Mexico, a key U.S. trade partner and
major supplier of crude oil.
Brent crude LCOc1 futures fell $2.38, or 3.6%, to settle
at $64.49 a barrel. U.S. West Texas Intermediate (WTI) crude
CLc1 futures fell $3.09 to $53.50 a barrel, a 5.5% loss.
Brent touched a session low of $64.37 a barrel, lowest since
March 8. WTI hit $53.41 a barrel, weakest since Feb. 14.
Brent futures posted an 11% slide in May and WTI a 16% drop,
their biggest monthly losses since November.
Trump vowed on Thursday to ratchet up tariffs unless Mexico
stopped people from illegally crossing into the United States.
The plan would impose a 5% tariff on Mexican imports starting on
June 10 and increase monthly, up to 25% on Oct. 1. That could hit the lucrative cross-border energy trade.
"U.S. refiners import roughly 680,000 barrels per day of
Mexican crude. The 5% tariff adds an extra $2 million to the
cost of their daily purchases," PVM analysts said.
The United States also exports more fuels to Mexico than any
other country, according to the U.S. Energy Department. So far
Mexico has not said whether it would retaliate.
Mexican President Andres Manuel Lopez Obrador on Friday
urged Trump to back down from the threats. Investors were already worried that the U.S.-China trade war
increased the danger of a recession. Additional levies by Beijing on the majority of U.S. imports
on a $60 billion target list are due to take effect on Saturday,
in response to Washington's move this month to slap further
tariffs of up to 25% on $200 billion of Chinese goods.
A Reuters survey showed Brent crude prices are likely to
hold near $70 a barrel for the rest of the year as elevated
supply risks in the Middle East offset risks to demand.
Top oil exporter Saudi Arabia's increased output in May was
not enough to compensate for lower Iranian exports, a Reuters
survey found. The Organization of the Petroleum Exporting
Countries is expected to meet in late June. At the beginning of
the year, OPEC and allies agreed to cut production by 1.2
million bpd. U.S. production has offset that decline, as output
C-OUT-T-EIA returned to a record 12.3 million barrels per day,
and as U.S. crude stocks fell less than expected last week,
according to weekly figures. EIA/S
"This fresh tariff headline offers a 'pile on' effect to an
oil market that has already been seeing downside pressure from
some unexpectedly large U.S. crude supply increases that have
been weighing on values across this month of May," Jim
Ritterbusch, president of Ritterbusch and Associates, said in a
note.
U.S. energy firms increased the number of oil rigs operating
for the first week in four, adding three oil rigs, General
Electric Co's GE.N Baker Hughes energy services firm said.
RIG-OL-USA-BHI But in May the rig count was reduced for the
sixth straight month.
Hedge funds and other money managers cut combined futures
and options position in New York and London in the week to May
28 by 38,030 contracts to 212,080, the U.S. Commodity Futures
Trading Commission (CFTC) said.

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GRAPHIC: U.S. oil drilling, production & storage levels https://tmsnrt.rs/2DxgF8W
Oil prices monthly changes https://tmsnrt.rs/2WujIcF
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