* U.S. oil crude inventories up, countering expectations
* Poor U.S. economic outlook weighs on demand
* Washington to send envoy to Tehran for talks
SINGAPORE, July 17 (Reuters) - Oil was inching higher on
Thursday, following a second consecutive session of steep
losses, as a surprise build in U.S. crude oil inventories amid
flailing demand continued to weigh on the market.
U.S. crude futures <CLc1> were 40 cents higher at $135.00 a
barrel at 0105 GMT, after falling $4.14 to settle at $134.60 a
barrel on Wednesday.
The losses, together with Tuesday's drop of $6.44, bring
oil close to $13 below last week's all-time peak. London Brent
crude <LCOc1> fell $2.56 to $136.19 a barrel.
The slide in prices, which marked the biggest two-day loss
in percentage terms since January 2007, propped up stocks on
Wall Street, helping it to regain some of the ground lost in
recent days on fears over the health of the U.S. banking
sector.
"Oil prices are now at a level where you are beginning to
see demand adjustments," said David Moore, an analyst at
Commonwealth Bank of Australia.
Investors looking to hedge against inflation and the weak
dollar have dumped their money into oil and other commodities,
contributing to a 50 percent oil price rally this year that
reached a peak above $147 a barrel this month.
Dealers said Wednesday's losses were triggered by a 3
million barrel crude stock build in the United States -- in the
face of expectations for a decline -- alongside a rise in
gasoline and distillate inventories, a report from the U.S.
Energy Information administration showed.
"Besides the increase in crude, gasoline, and distillate
stocks, it's interesting to note that demand in the United
States remains relatively weak as well," Moore said.
The widely watched government report also showed U.S. oil
products demand running 2.0 percent below year-ago levels,
another sign that soaring prices are cutting into consumer
demand for fuel.
Adding to pressure on oil prices, a senior U.S. official
said on Tuesday the United States planned to send an envoy to
talks this weekend between Iran and major powers over Tehran's
nuclear program.
Washington had said previously it would not be involved in
any pre-negotiations with Iran unless it gave up nuclear
enrichment. The standoff between the Islamic Republic and the
West has helped boost oil prices .
Saudi Arabia, the world's top oil exporter, wants to see
lower oil prices, Saudi King Abdullah said in an interview with
an Italian newspaper.
Oil's six-year rally has also been driven partly by
ballooning demand from developing economies such as China and
India.
(Reporting by Luke Pachymuthu; Editing by Clarence Fernandez)
