UPDATE 4-Oil drops as inventories and COVID vaccine halt threaten demand

Updates prices

By Shadia Nasralla

LONDON, March 16 (Reuters) - Oil prices fell for a third day on Tuesday, as a recovery in demand was threatened by rising U.S. inventories and moves by Germany, France and some other European states to suspend the use of a major coronavirus vaccine.

Brent LCOc1 was down $1.11 cents, or 1.6%, at $67.77 a barrel by 1325 GMT. U.S. crude CLc1 fell $1.17, or 1.7%, at $64.22.

Germany, France and Italy said they would suspend the use of the Oxford/AstraZeneca AZN.L vaccine after reports about possible serious side effects, although the World Health Organization said there was no established link to the vaccine.

The moves deepen concerns about the slow pace of vaccinations in the European Union, threatening an economic recovery and fuel demand. nL1N2LD0O2

The pandemic eviscerated demand for oil. Prices have recovered to levels seen before the global health crisis, but gains have been capped as vaccine rollouts have proceeded slowly in many countries.

In the United States, crude inventories are also rising as refineries have taken time to recover fully from a "big freeze" that halted their operations in Texas and elsewhere.

"Short-term direction will be set by the weekly U.S. inventory reports," PVM analysts said in a note, adding that the dollar's strength against other currencies also weighed on the oil price.

Analysts expect another week of inventory gains when the American Petroleum Institute, an industry group, reports on crude stockpiles on Tuesday, followed by official numbers from the Department of Energy on Wednesday. API/S

Inventories rose by 12.8 million barrels in the week to March 5, against forecasts for a rise of less than 1 million barrels.

(Additional reporting by Aaron Sheldrick; Editing by Susan Fenton and Edmund Blair)

((Shadia.Nasralla@thomsonreuters.com; +44 207 542 5083; +44 778 99 43141; Reuters Messaging: Reuters Messaging: shadia.nasralla.reuters.com@reuters.net))