UPDATE 7-Oil falls over 3 pct on EIA report, economic doubts

                                
 * EIA weekly inventory data shows big rise in fuel stocks
                                
 * Distillates at highest level in nearly 25 years
                                
 * OPEC lowers its medium and long-term demand forecasts
                                
 * G8 meets in Italy, focus on regulation
 (Updates throughout, changes dateline from LONDON previous)
                                
 By Rebekah Kebede
                                
 NEW YORK, July 8 (Reuters) - Oil dropped over 3 percent to under $61 a
barrel Wednesday after a U.S. government report showed that distillate
stocks have risen near a 25-year high, reinforcing worries about a
potential economic rebound.
                                
 U.S. crude <CLc1> dropped $12.26 to $60.67 a barrel by 1:24 p.m. EDT
(1724 GMT) after settling lower on Tuesday, in a fifth straight day of
losses.
                                
 London Brent crude <LCOc1> fell $2.29 to $60.94.
                                
 "This market was already in a downward mood and this report did nothing
to alleviate this situation... distillate stocks are showing signs that the
economy has not had any real improvements yet." said Mike Zarembski, Senior
Commodities analyst at optionsXpress in Chicago.
                                
 Distillate stocks, including diesel, the primary fuel of industry,
climbed by 3.7 million barrels last week, compared with an expected two
million barrel rise, according to the U.S. Energy Information
Administration's weekly report. [EIA/S]
                                
 The data also showed gasoline stocks had risen by 1.9 million barrels
despite the Fourth of July holiday weekend which is traditionally the peak
travel weekend of the summer driving season.
                                
 "It looks like we're going to make it through the summer driving season
with ample supplies and that's definitely not bullish for this market,"
Zarembski said.
                                
 Oil prices have dropped from peaks above $70 a barrel last month, the
highest this year, as expectations of an economic recovery have faltered
and U.S. fuel stocks have risen in line with subdued demand.
                                
 Producer group OPEC in its 2009 World Oil Outlook released on Wednesday
said consumption of its crude would not return to 31 million barrels per
day (bpd), the level it averaged in 2008 before the economic crisis cut oil
use, until 2013. [ID:nL8624047]
                                
 REGULATORY FEARS
                                
 Commodities, including oil, were also pressured by a statement from the
U.S. Commodities Futures Trading Commission (CFTC) this week that it was
considering tougher position limits to try to curb speculation.
[ID:nL8606756]]
                                
 Market players were also monitoring the meeting of the Group of Eight
major industrialised nations in the central Italian city of L'Aquila, which
continues until Friday, where the group called for reduced volatility in
energy markets. [ID:nMOB000011]
                                
 However, Russian President Dmitry Medvedev told the summit that it was
impossible to regulate oil prices via administrative measures and said the
fair price for oil would be $70-$80 per barrel.[ID:nRON004709]
                                
 (Additional reporting by Christopher Johnson and Barbara Lewis in
London, Maryelle Demongeot in Singapore; editing by James Jukwey)