* U.S. oil demand decline slows, economy improving - API
* U.S. crude stocks down 8.4 million barrels last week - EIA
* Chinese equity sell-off rattles global markets
(Updates prices, recasts)
By David Sheppard
LONDON, Aug 19 (Reuters) - Oil reversed early losses on
Wednesday to leap back towards $71 a barrel, as data showing oil
demand could be recovering in the United States outweighed
doubts about the strength of the global economy.
By 1500 GMT, U.S. crude for September delivery <CLc1> was up
$1.49 at $70.68 a barrel, having earlier hit a high of $71.35.
London Brent crude for October <LCOc1> was up $1.03 at
$73.40.
The U.S. Energy Information Administration (EIA) said crude
stocks in the world's largest energy consumer fell by 8.4
million barrels last week, confounding analyst expectations for
a rise of 1.3 million barrels. []
Some analysts urged caution as oil imports to the United
States slumped to their lowest level since September 2008, but
stocks of gasoline and distillates also fell, boosting the view
demand might be bottoming out after being curbed by the
recession.
Adding to the bullish mood, the American Petroleum Institute
(API) said U.S. oil demand in July showed signs of improvement,
with demand down 3 percent year-on-year last month compared with
an average drop of around 6 percent in the first half of 2009.
[]
"I think these (demand) changes are reflective of an
improving economy, but one must be cautious because these
changes are versus year ago weak numbers," said API chief
economist John Felmy.
STRONG ECONOMY?
Prices had fallen earlier on Wednesday, hitting a low of
$68.05 after a near 5 percent slump in Chinese shares sent
doubts rippling through global markets about the strength of the
world economic recovery. []
"The good news that has driven markets over much of the
summer has been emanating from China, they seemed to be leading
the return to global growth," said Paul Harris, head of natural
resources risk management at Bank of Ireland Global Markets.
"But this is going to be a patchy recovery as we emerge from
such a sharp global slowdown -- it's not going to be in a
straight line."
The $3 a barrel price reversal was also helped by weakness
in the U.S. dollar, which slumped against the euro. A weak
dollar tends to boost commodities priced in the greenback as
they become cheaper for holders of other currencies.
Jim Ritterbusch, president of Ritterbusch and Associates in
Illinois said the jump in prices was not yet warranted by
fundamentals alone.
"(The) market appears to be overreacting but the weakening
dollar is providing a solid base for this price spike,"
Ritterbusch said.
Traders also watched for storms in the Atlantic Basin but
there was no immediate threat seen to U.S. oil installations in
the Gulf of Mexico.
Hurricane Bill, the first of the 2009 Atlantic season, grew
into a major Category 4 storm on Wednesday, as it moved closer
to Bermuda. []
(Additional reporting Emma Farge in London; New York energy
desk and by Jennifer Tan in Singapore; Editing by James Jukwey)
