Oil gains on driving season demand, China rate cut hopes

By Simon Falush

LONDON (Reuters) - Oil prices gained on Tuesday, recouping some of the previous session's losses, as higher seasonal demand in developed economies offset the impact of a large global supply overhang.

Brent for July delivery was up 95 cents to $63.64 a barrel as of 0846 GMT, having settled down 62 cents in the previous session.

Front-month U.S. crude climbed 73 cents to $58.87 a barrel, after ending the previous session down 99 cents.

Demand for oil tends to increase in the summer months as drivers take to the roads for holidays in Europe and the United States. This has helped counter the impact of a growing glut in supply that has led to tankers storing oil at sea.

"There is currently seasonal demand for oil, so there is less of a build in crude oil stocks," said Olivier Jakob at Petromatrix in Zug, Switzerland. "But there is still too much oil for the rally to take hold."

Hopes of more economic stimulus in China after disappointing data from the world's No.2 economy also gave some support to the oil price.

China's consumer inflation weakened more than expected, to 1.2 percent year on year in May, raising concerns about growing deflationary pressures as the economy cools. Its producer prices fell for the 38th consecutive month.

Underlining general weakness in the market, data the previous day showed Chinese oil imports fell by about 11 percent in May from a year earlier in their steepest drop since November 2013.

The outlook for strong supply looks entrenched with OPEC on Friday agreeing to continue unconstrained output and Iran and Iraq potentially boosting production.

"Iran in particular has the potential to flood the market with the most crude oil if sanctions are lifted later this month," ANZ said in a note.

In Iraq, government forces backed by U.S.-led coalition air strikes have opened supply lines into the town of Baiji and its nearby oil refinery, making progress against Islamic State rebels, the Pentagon said on Monday.

An official in Iran, OPEC's fifth-largest crude producer, said on Monday that eight European companies are keen to invest in the country's $2.8 billion Siraf oil refinery project, as it ramps up capacity.

Elsewhere, oil production declines from the largest U.S. shale plays are forecast to deepen for a third consecutive month in July even as rig productivity remains high, data from the U.S. Energy Information Administration showed.

Asia shares sank in a sea of red on Tuesday as speculation of a U.S. rate rise as early as September hit emerging markets generally, while failing to give a lasting lift to the dollar.

(Additional reporting by Meeyoung Cho in Seoul; editing by Jason Neely)