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NEW YORK: Oil plunged Thursday, with US crude dropping almost 3 percent as the market grappled with oversupply fears as increased US sanctions on Iran had more gradual impact than expected and US crude oil inventories rose sharply.

US crude settled down $1.79 or 2.8 percent at $61.81 a barrel, heading for its biggest weekly fall since February.

Brent crude futures fell $1.43 a barrel, or 2 percent to $70.75.

Market sentiment became more bearish as shifting US policy on Iran had less immediate impact than initially feared, analysts said.

The US sanctions on Iran intensified this week as the Trump administration halted waivers allowing eight countries including China and Turkey to continue to do business with Iran. The roll-back of the waivers did not immediately lead to supply shortages.

"You don't get a sense that China or Turkey are pulling back completely," said John Kilduff, a partner at Again Capital Management in New York. "A little bit of the angst in the market has come out here."

China has complained to the United States about its Iran sanctions and Turkey said it was unable to replace Iranian imports easily, calling on Washington to review its move.

Oil prices had previously been supported by the political crisis in Venezuela, thee stricter US sanctions against Iran and production cuts from the Organization of the Petroleum Exporting Countries.

Any residual bullish sentiment also eroded as robust US crude stockpiles indicated that the market was well supplied.

Energy information supplier Genscape forecast that storage at the US hub at Cushing, Oklahoma had increased 1.95 million barrels between April 26 and 30, traders said.

US crude stockpiles last week rose to their highest since September 2017, jumping by 9.9 million barrels to 470.6 million barrels as production hit a record high of 12.3 million barrels per day (bpd), government data showed.

"This comes as US refineries head into the spring maintenance period, stoking fears that crude oil demand will be soft and stockpiles will continue to rise," ANZ bank said.

In Eastern Europe, countries have secured supplies to offset shipments halted due to contamination.

Poland's energy ministry said it had decided to release mandatory oil reserves following the suspension of contaminated oil deliveries from Russia in April, to secure regular output at local refineries.

Belarus said on Thursday that clean oil had reached it via the Druzhba pipeline from Russia.

The outage has helped push up North Sea crude differentials.

Despite the desire of many OPEC members to continue supply cuts, the group may eventually be forced into action to meet demand in a market that has seen prices rise more than 30 percent this year.

Russia has sent signals about potentially increasing output. In April, the country's oil output fell month-on-month, but stayed above OPEC quotas.

"OPEC is like a tea bag; it works best in hot water ... The US oil market might just be providing the producer group with the perfect excuse to extend the production agreement for at least another six months," PVM's Tamas Varga said.

Copyright Reuters, 2019