* U.S. crude stocks up, against forecasts, products also
rise
* Poor U.S. economic outlook weighs on demand
* Washington to send envoy to Tehran for talks
(Updates prices, Petrobras)
By Luke Pachymuthu
SINGAPORE, July 17 (Reuters) - Oil held steady on Thursday,
after a second consecutive session of steep losses the day
before, as a surprise build in U.S. crude oil inventories amid
flailing demand weighed on the market.
U.S. crude futures <CLc1> rose 26 cents at $134.86 a barrel
at 0351 GMT, after sliding $4.14 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 for September <LCOc1> gained 23 cents to
$136.04 a barrel. The August contract expired down $2.56 on
Wednesday.
The price slide, which marked the biggest two-day loss in
percentage terms since January 2007, propped up stocks on Wall
Street, helping it 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 increase in crude stocks in the United States,
against forecasts for a fall, alongside a rise in gasoline and
distillates, Energy Information Administration data showed.
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"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, and as the U.S. economy was going through a
rough ride.
Adding to pressure on oil prices, a senior U.S. official
said on Tuesday the United States planned to send an envoy for
talks this weekend between Iran and major powers over Tehran's
nuclear programme.
Washington had said 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.
An oil worker strike in Brazil this week was also not
significantly affecting oil production levels, Brazil's state
oil company Petrobras said Tuesday.
(Editing by Ramthan Hussain)
