UPDATE 4-Oil tumbles on emerging markets demand worries

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* US distillate stocks drop on sustained cold -EIA

* Expectations of more U.S. Fed tapering hit oil (Writes through with fresh quotes, background, updates data.)

By Lin Noueihed

LONDON, Jan 24 (Reuters) - Global oil prices tumbled below $107 a barrel on Friday, tracking a sharp sell-off in stocks and emerging markets as worries mounted over an economic slowdown in China.

Expectations that the U.S. Federal Reserve will taper its stimulus package next week were also weighing on prices.

Brent, the international benchmark, accelerated its decline to fall 93 cents to $106.65 by 1232 GMT, but was on course to end the week at its highest since Dec. 20. It ended 69 cents lower the prior session after weak factory activity data from China, the world's second-largest oil consumer.

U.S.

"Fed tapering hit oil (Writes through with fresh quotes, background, updates data.)By Lin NoueihedLONDON, Jan 24 (Reuters) - Global oil prices tumbled below $107 a barrel on Friday, tracking a sharp sell-off in stocks and emerging markets as worries mounted over an economic slowdown in China.Expectations that the U.S"oil, or WTI, fell 35 cents to $96.97 by 1232 GMT, after settling 59 cents higher on Thursday. It was still set to record its biggest weekly rise since Dec. 6

"There is a spike in risk aversion. We have seen a fall across all risky assets and crude is one of them," said Carsten Fritsch, analyst at Commerzbank.

"Stocks are down. Emerging market currencies are down.

The Chinese data was the trigger but it is a wider emerging markets issue as emerging markets were the main driver of demand growth."

China's factory sector contracted in January for the first time in six months, a preliminary survey showed on Thursday, pointing to a weak start for the economy in 2014.

Investors fled markets in Asia and Latin America, fearing the impact of slower growth in China and expectations the Fed will cut further its bond-buying stimulus at a policy meeting next week.

Brent and U.S. oil futures had started the day strong as bitter cold in the United States sapped stockpiles of crude and distillates in the world's largest consumer of oil and drew heating oil imports from Europe, Russia and Asia.

"We saw crude move higher yesterday due to the inventory data but I tend to see that as short term. Long term the fundamentals for oil remain to the downside," said Michael Hewson, chief markets analyst at CMC Markets in London.

"The Iranian president's comments at Davos yesterday were very positive in terms of taking the risk premium off Brent... The demand outlook for Brent remains fragile."

President Hassan Rouhani said on Thursday Iran was determined to negotiate a comprehensive deal on its nuclear programme with major powers so it can develop its battered economy, inviting Western companies to seize opportunities now and raising market expectations of an eventual settlement.

SUPPLY OUTLOOK

A monthly report from industry group American Petroleum Institute (API) also showed a rise in U.S. petroleum product demand, reflecting a continued improvement in domestic manufacturing and the broader economy.

Demand in December rose 5.8 percent year-on-year to 19.2 million barrels per day (bpd), the API said.

Improved demand prospects in the United States coupled with the opening of a key pipeline has helped the spread between Brent and WTI, a popular trade for speculators last year, narrow to less than $10 for the first time in months.

The spread touched $9.83 on Friday, its lowest since Nov.

"Federal Reserve will taper its stimulus package next week were also weighing on prices.Brent, the international benchmark, accelerated its decline to fall 93 cents to $106.65 by 1232 GMT, but was on course to end the week at its highest since Dec"8, a change analysts have partly attributed to the opening of a pipeline from the congested Cushing crude oil storage hub to a cluster of refiners on the U.S. Gulf Coast.

The line is a major step toward easing the gap between depressed inland U.S. crude oil and much higher global prices paid on the coast.

"We will look for some stability at current levels while we also feel that the next $2 move is apt to show a narrowing rather than an expansion," Jefferies Bache analysts said in a note to clients. (Additional reporting by Manash Goswami in Singapore; Editing by Dale Hudson and Keiron Henderson)

FILED UNDER: Davos Energy

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