Oil prices slump 2 percent as Wall Street slides

By Stephanie Kelly

NEW YORK (Reuters) - Oil prices dropped 2 percent on Wednesday as U.S. equity markets broadly fell, even though energy traders worried about shrinking Iranian supply from U.S. sanctions and kept an eye on Hurricane Michael, which closed some U.S. Gulf of Mexico oil output.

Brent crude futures fell $1.91, or 2.3 percent, to settle at $83.09 a barrel. The global benchmark posted a 1.3 percent gain on Tuesday.

U.S. West Texas Intermediate (WTI) crude futures fell $1.79 to settle at $73.17 a barrel, a 2.4 percent loss.

U.S. stocks markets skidded, on track for the biggest daily decline since April, and the sell-off intensified as the day wore on as rising U.S. Treasury yields and trade policy related worries sent investors fleeing for safety.

"As long as we continue to see broad-based weakness in the equity sector, that's going to start spilling over into other areas as well. One in particular will be energy because it's all about economic expectations," said Brian LaRose, a technical analyst at United-ICAP.

Risks to the global financial system have risen over the past six months and could increase sharply if pressures in emerging markets escalate or global trade relations deteriorate further, the International Monetary Fund (IMF) said.

On Tuesday, the IMF cut its global economic growth forecasts for 2018 and 2019, raising concerns that demand for oil may also slump.

In the U.S. Gulf of Mexico, producers have cut oil output by roughly 42 percent due to Hurricane Michael, the Bureau of Safety and Environmental Enforcement said on Wednesday, citing reports from 30 companies. The cuts represent 718,877 barrels per day of oil production. [nL2N1WQ1I7]

The storm made landfall in Florida on Wednesday as a Category 4 hurricane.

While crude output has been cut because of the hurricane, "down time is expected to be brief and Gulf of Mexico output now accounts for a comparatively small portion of total U.S. production," Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

Worries about crude supply from the Middle East have given prices some support.

Iran's crude exports fell further in early October as buyers sought alternatives ahead of U.S. sanctions that take effect on Nov. 4, according to tanker data and an industry source.

Saudi Arabia, the world's biggest oil exporter, will supply Indian buyers with an additional 4 million barrels of crude oil in November, several sources familiar with the matter said. India is Iran's top oil client after China.

Several of the world's biggest trading houses expect U.S. sanctions on Iran to keep oil prices high, with crude staying above $65 and possibly breaking above $100 in the medium term.

U.S. crude oil output this year was expected to rise 1.39 million bpd to a record 10.74 million bpd, the U.S. Energy Information Administration said in its monthly forecast on Wednesday. [nL2N1WQ157]

In the short term, the market was eyeing upcoming U.S. inventory data which was forecast to show a 2.6 million-barrel rise in crude stocks for last week, the third straight weekly build. [EIA/S]

The American Petroleum Institute (API), an industry group, will release its data at 4:30 p.m. (2030 GMT), followed by the EIA's report on Thursday at 11 a.m. - both reports delayed a day by Monday's federal holiday.

(Reporting by Stephanie Kelly in New York, Christopher Johnson in London and Aaron Sheldrick in Tokyo; Editing by Marguerita Choy and David Gregorio)