Oil prices dipped on Friday after the IEA said signs of a strong rally in global economic growth and oil demand were fading.

The International Energy Agency however added in its latest monthly report that there could be a dramatic turnaround for demand next year.

New York's main contract, light sweet crude for delivery in August fell 20 cents to 60.21 dollars a barrel

In early London trade, Brent North Sea crude for August delivery dropped 10 cents to 61.00 dollars per barrel.

Crude prices are up more than 60 percent since the start of the year, fuelled partly by a weak dollar and overly upbeat hopes of a recovery in the global economy, analysts said.

"The demand-supply situation doesn't justify that sort of a rapid rise over such a short period of time," Gavin Wendt, an analyst for Fat Prophets research consultancy, said on Friday.

In the last two months many economists had announced that the global recession was bottoming out and were forecasting a strong recovery in the second half of this year, the International Energy Agency commented on Friday.

But "over the past two weeks the mood has suddenly changed, as many leading economic and energy indicators continue to show very weak readings, suggesting that the 'green shoots' have been largely driven by a rebuild of inventories rather than by strong end-user demand," the IEA said.

"We thus remain sceptical regarding the much-trumpeted, strong second half 2009 (oil) demand rebound, even if China exceeds expectations," it added.

Oil prices had eked out small gains on Thursday after falling below 60 dollars for the first time since late May as the market pondered sluggish energy demand in major economies.

In its weekly oil inventories report Wednesday, the Department of Energy reported a sharp spike in gasoline and other oil product inventories in the week ending July 3.

Although crude oil inventories plunged a sharper-than-expected 2.9 million barrels, the decline was driven by a surge in refinery use.

By contrast, US oil product stockpiles have ballooned in recent weeks because of weak demand amid a severe recession that began in December 2007.

US oil demand over the past four weeks was down 5.9 percent from the same period in 2008.

Meanwhile in the 60-dollar range, oil prices are some 25 percent below the officially desirable level set by the major oil consumers and producers.

On Wednesday, Group of Eight leaders meeting in Italy implicitly approved oil around 75 dollars a barrel, the price goal determined by OPEC a year ago.

G8 leaders agreed that 70-80 dollars was a "fair" price for a barrel of oil, a spokeswoman for Russian President Dmitry Medvedev said.