The oil market sank on Thursday after the International Energy Agency warned high prices could derail global economic growth and called for increased output to tackle the problem.

Oil prices also fell under pressure from a batch of disappointing economic data in the United States, the world's biggest oil-consuming nation, and news that Japan's economy plunged into recession in January-March.

New York's main contract, light sweet crude for June, dived $1.66 to $98.44. The contract expired at the close.

In London, Brent North Sea crude for delivery in July dropped 88 cents to settle at $111.42 a barrel.

The benchmark New York futures contract pulled back after a sharp rebound Wednesday that had been driven in part by a stabilization in US crude reserves after weeks of increases.

"We had good inventory data yesterday but today we're just giving back a bunch of these gains because we had a lot of weak economic data," said Matt Smith at Summit Energy.

"The data is so mixed at the moment that it is not surprising that we are seeing crude so choppy."

Investors had disappointing numbers to digest Thursday that highlighted trouble spots amid a weak economic recovery.

Weekly jobless claims fell for the second consecutive week but remained stuck above the 400,000 threshold in the week ending May 14, the US Labor Department said.

There was more grim news on the depressed housing market, where existing-home sales fell in April, and a sharp drop in the Fed's Philadelphia regional manufacturing index.

The Conference Board's leading economic indicators index also fell for the first time since June 2010.

Heightening market jitters was the International Energy Agency, which said oil prices remained high because of strong demand and geopolitical uncertainty -- a reference to unrest in the Middle East -- and called on producers to increase output.

The Paris-based IEA said high oil prices were "affecting the economic recovery by widening global imbalances, reducing household and business income, and placing upward pressure on inflation and interest rates."

"As global demand for oil increases seasonally from May to August, there is a clear, urgent need for additional supplies... to prevent a further tightening of the market," it said in a statement.

Further increases in prices "at this stage of the economic cycle risk derailing the global economic recovery and are neither in the interest of producing nor of consuming countries," it warned.

The IEA "urges action from producers that will help avoid the negative global economic consequences which a further sharp market tightening could cause, and welcomes commitments to increase supply."

channelnewsasia.com