* Oil extends losses by $5 on demand worries
* Three-day sell-off biggest in more than three years
* Iran says U.S. presence at nuclear talks "positive"
* Losses limited by supply problems in Nigeria, Canada
(Updates throughout)
By Richard Valdmanis
NEW YORK, July 17 (Reuters) - Oil prices dropped by $5 on
Thursday, adding to a decline of about 12 percent from last
week's record on worries over U.S. demand and easing political
tensions between Iran and the West over the OPEC producer's
nuclear program.
Oil's slide marks the biggest 3-day loss in the market in
percentage terms since December 2004, and the biggest 3-day
loss in dollar terms since oil futures started trading in New
York in 1983.
The sell-off has been a boon to world stock markets that
have recovered some ground after getting hard-hit in recent
months by mounting fears over inflation and the health of the
banking sector.
U.S. crude <CLc1> fell $5 to $129.60 a barrel at 2:30 p.m.
EDT (1830 GMT), the lowest since early June, adding to more
than $10 of losses over the previous two days that have brought
prices further from Friday's all-time peak of $147.27 a barrel.
London Brent crude <LCOc1> fell $4.72 to $131.09 a barrel.
Despite the losses, oil prices remain up nearly 30 percent
so far this year, and more than sixfold since 2002, driven by
surging demand from developing economies in Asia and worries
that world production growth won't be able to keep pace.
Dealers said the bulk of the downward push on crude oil in
recent days has been concern that economic trouble in the
United States was cutting deeply into demand for fuel in the
world's biggest energy consumer.
"Consumers are being pinched between higher costs for
necessities and lower real wages. The end result is falling
demand almost across the board," said Peter Beutel, president
of Cameron Hanover.
A U.S. government report on Wednesday showed that U.S. oil
product demand over the past four weeks running 2 percent below
a year ago in a sign soaring pump prices were hitting
consumption.
Dealers added that apparent easing tensions between the
United States and Iran over the latter's nuclear program have
reduced some of the geopolitical risk premium in the oil
market.
The United States said on Wednesday it was sending an envoy
to Geneva to join nuclear talks with Iran for the first time,
to underline to the Islamic Republic and others that Washington
wanted a diplomatic solution to the impasse.
Iran's foreign minister said on Thursday U.S. participation
in the nuclear talks was "positive."
Thursday's losses were limited by fresh supply disruptions
in Nigeria and Canada that together pulled nearly 200,000
barrels per day off the market -- the equivalent of a large oil
field in the Gulf of Mexico.
An attack on an oil pipeline in Nigeria, the world's
eighth-biggest oil exporter, led Italian oil company Eni to
temporarily shut down production of 47,000 bpd in Nigeria
because of loss of pressure in the lines.
In Canada, Suncor Energy Inc <SU.TO> said a leak at a
pipeline carrying synthetic crude and diesel from its oil sands
fields in Alberta forced a halt of about 140,000 bpd of
shipments. []
(Addition reporting by Santosh Menon in London, Luke
Pachymuthu in Singapore and Gene Ramos in New York; Editing by
Christian Wiessner)
