Oil prices steady after U.S. stock draw, but China outlook drags

By Henning Gloystein

SINGAPORE (Reuters) - Oil prices steadied on Thursday, supported by lower U.S. stockpiles and a firm demand outlook, but worries over China's economy continued to weigh.

A 1.7-million barrel drop in U.S. stockpiles last week helped to at least temporarily halt a price slide that has lasted since May and seen WTI and Brent lose over a quarter of their value.

A relatively bullish outlook by the International Energy Agency (IEA) on Wednesday also supported prices.

U.S. crude was trading at $43.35 per barrel at 0410 GMT, up 5 cents from Wednesday's close. Brent futures were 12 cents higher at $49.78 a barrel.

"Prices recovered overnight after initial declines, supported by an IEA announcement and a weaker dollar," ANZ bank said on Thursday.

The IEA said global oil demand growth in 2015 would be the strongest in five years, although it added that global oversupply would last through 2016.

But analysts said there were some doubts around a bullish demand forecast, especially in Asia where China's economy is showing increasing signs of weakness, with the devaluation of its yuan currency potentially denting demand for imports of fuel.

"All is not well with the Chinese economy," Howie Lee, investment analyst at brokerage Phillip Futures, told the Reuters Global Oil Forum on Thursday.

"There is just so much pessimism attached to this move (yuan devaluation). For China to emerge and start a fresh currency war when they previously didn't, smacks of desperation," he added.

China's yuan opened slightly weaker on Thursday but the gap between the guidance rate and the traded rate closed sharply as the central bank tried to slow a sharp selloff that saw the currency lose around 4 percent in just two days.

China's implied oil demand fell in July from the previous month amid a continuing drop in the nation's vehicle sales that could mute growth further in the second half of 2015.

China consumed roughly 10.12 million barrels per day (bpd) of oil in July, down more than 4 percent from June, although the implied use was up from 9.72 million bpd a year ago, according to calculations based on preliminary government data.

The month-on-month fall came as Chinese auto sales dropped 7.1 percent in July from a year earlier, the fourth straight monthly decline and biggest since February 2013.

(Editing by Joseph Radford)