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NEW YORK (Reuters) - Crude oil futures dropped for a second straight day on Thursday as more signs of slowing U.S. economic growth and swelling U.S. inventories sparked a wave of selling that sent prices crashing through key support levels.
U.S. crude ended 2.6 percent lower, the biggest one-day percentage loss since December 14, while Brent crude finished down 1.8 percent, racking up a 3 percent loss in two straight days, its biggest two-day percentage loss since February 28.
Slower-than-expected growth in the massive U.S. service sector dragged on markets as traders awaited the April U.S. payrolls data on Friday. Oil markets have been balancing supply concerns stemming from a string of disruptions across the globe and the potential loss of Iranian crude due to Western sanctions against fuel demand, which has been hit by the struggling economy and high prices.
OPEC Secretary General Abdullah al-Badri said the producer group was worried about the impact of high prices -- which neared $130 a barrel -- on demand and that it was working hard to bring them down by pumping above official production targets.
Additional pressure on prices came after industry data provider Genscape reported that crude inventories at the Cushing, Oklahoma, delivery point for U.S. oil futures hit a fresh record high on May 1.
The build helped widen Brent's premium to U.S. crude, which has traded in between $12 and $16 a barrel in recent weeks ahead of a pipeline reversal in mid-May that will help alleviate a glut in Midwest inventories.
In London, ICE Brent crude for June delivery settled at $116.08, down $2.12, after breaking below its 100-day moving average of $117.34. A week ago, it hit a high of $120.17, highest since mid-April.
U.S. June crude finished down $2.68 at $102.54, the lowest front-month settlement in two weeks. Near the close, it dropped to a session low of $102.36, below the 100-day moving average of $102.37.
Brent's premium against U.S. crude widened 60 cents to $13.54 a barrel, following news of the rising Cushing inventories.. The premium has been moving downward since April 5, when it hit $21.91, highest since October.
Trading in U.S. crude was heavy, about 26 percent above its 30-day average, while Brent crude dealings climbed about 5 percent above its 30-day average, according to Reuters data.
"Crude prices hit the top of their trading range recently and so people are selling and are also being cautious ahead of the U.S. jobs data on Friday," said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis, Missouri.
The closely watched U.S. services sector index from the Institute for Supply Management fell in April to 53.5, from 56 the month before, missing analyst expectations for a reading of 55.5. That, along with other recent data, suggested the economy was losing steam.
More than half of U.S. retailers missed monthly same-store sales expectations for April, according to Reuters data.
Both sets of data offset an early report that the number of Americans filing new claims for jobless benefits fell more than expected last week.
The jobless claims data "argues against a further easing" from the U.S. Fed and "the ISM services report obviated the (recent) manufacturing reading too," said John Kilduff, partner at Again Capital in New York.
Kilduff and other market commentators also cited comments by European Central Bank President Mario Draghi that, while the euro zone economy was likely to improve this year, the outlook was uncertain and there were risks of a decline.
"So several items added up (to spark) a decent sell-off," Kilduff said.
Friday's jobs report is expected to show that nonfarm jobs payrolls rose 170,000 last month, according to a Reuters poll, after a tepid 120,000 increase in March. The unemployment rate was expected to hold at a three-year low of 8.2 percent.
Oil futures also came under pressure from data showing that growth of the service sector in China, the world's second-largest consumer of oil after the U.S., slowed last month from the March level, which was a 10-month high.
Traders were also watching ongoing tensions between Iran and the West over Tehran's nuclear program. Iran on Wednesday said it wanted to see an end to international sanctions imposed by the West due to its nuclear program, ahead of another meeting with world powers on May 23 in Baghdad.
On Thursday, the five permanent members of the U.N. Security Council said they expected talks with Tehran to lead to concrete steps toward a negotiated solution.
Tensions spawned by the disputed program had caused a run-up in oil prices, hitting their highs for the year over $128 a barrel in early March. Prices have since then moderated as Iran agreed to return to the negotiating table.
Additional reporting by Robert Gibbons in New York, Jessica Donati in London; Editing by David Gregorio, Marguerita Choy, Sofina Mirza-Reid, Matthew Robinson and M.D. Golan