By Scott DiSavino

NEW YORK (Reuters) - Oil prices fell almost 4% to their lowest in over two months on a smaller-than-expected decline in U.S. crude inventories and fears of a global economic slowdown due to the U.S.-China trade war.

The Energy Information Administration (EIA) said U.S. crude stockpiles fell nearly 300,000 barrels last week, less than the 900,000-barrel decline analysts forecast in a Reuters poll and well below the 5.3 million-barrel drawdown the American Petroleum Institute (API) reported late Wednesday.

The decline last week reduced crude stocks from their highest since July 2017 seen the previous week, but at 476.5 million barrels, they were still about 5% above the five-year average for this time of year.

"The oil inventories report has added to the bearish sentiment prevailing in today's trading session," said Abhishek Kumar, head of analytics at Interfax Energy in London, noting "Demand-side concerns emerging from the ongoing U.S.-China trade war are expected to remain the key driver weighing on oil prices."

Brent futures fell $2.58, or 3.7%, to settle at $66.87 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped $2.22, or 3.8%, to close at $56.59.

Those were the lowest closes for Brent since March 12 and WTI since March 8.

For the month, Brent is on track to fall about 8% and WTI around 11%, which would be the first monthly decline for both contracts in five months.

The premium of Brent over WTI , meanwhile, fell to around $10 per barrel, down from a more than four-year high of $11.59 on Wednesday.

"An escalating U.S.-China trade war represents a risk to oil markets," Bernstein Energy said in a note.

A senior Chinese diplomat compared trade actions from Washington to "naked economic terrorism."

Bernstein Energy said under "a full-blown trade war scenario," global oil demand would grow by just 0.7% this year, half of current estimates.

Because of weakening demand, Bernstein said any upside for oil markets was capped despite relatively tight supply.

Oil prices have been supported this year by output cuts from the Organization of the Petroleum Exporting Countries and other major producers, as well as by falling supplies from OPEC members Iran and Venezuela due to U.S. sanctions.

Iranian May crude exports dropped to less than half of April levels at around 400,000 barrels per day (bpd) after the United States tightened sanctions on Tehran's main source of income. Iran needs to export at least 1.5-2.0 million bpd of crude to balance its books.