* Analysts say demand too weak for strong rally above $70
* Market awaits U.S. government data after industry figures
* Weaker dollar, economic confidence provides some support
(Updates throughout)
By Chris Baldwin
LONDON, Sept 16 (Reuters) - Oil eased to around $71 a barrel
on Wednesday after a bigger-than-forecast rise in U.S. fuel
stocks offset positive expectations for the world economy that
spurred other markets higher.
NYMEX crude <CLc1> was 27 cents higher at $71.23 a barrel by
1319 GMT, after settling up $2.07 on Tuesday, while ICE Brent
<LCOc1> was up 12 cents at $69.98.
Equities markets and other commodities rose strongly,
inspired by comment from the U.S. Federal Reserve Chairman Ben
Bernanke recovery was gaining momentum. []
The FTSEurofirst 300 <> index of top European shares
cracked the 1,000 mark for the first time since October 2008.
[] and gold hit 18-month highs. <XAU=>
But oil focused on inventory levels in the world's biggest
energy user after figures from U.S. industry body the American
Petroleum Institute showed crude stocks had risen, countering
expectations for a fall, and product inventories had risen much
more than forecast.
The market was waiting to see if government data for release
at 1430 GMT would confirm the trends and imply still weak fuel
demand.
"We always have a pause on Wednesday for oil," said BNP
Paribas analyst Harry Tchilinguirian. "It's a normal pitstop for
the week for the market to take stock of what's happening in the
U.S."
Christopher Bellew, broker at Bache Financial, said oil
trade was rangebound and the market was in thrall to the Energy
Information Agency statistics before attempting any likely
breakthrough.
"We are much stronger than yesterday when we were at the
bottom of the range. We just recovered last night, rather than
this morning," Bellew said.
RETURNING APPETITE
Although supply and demand fundamentals played big roles on
Wednesday, many say a return of risk appetite is the real reason
for recovery from a market low of $32.40 in December -- the
weakest in nearly five years -- to the August year-high of $75.
As all markets have looked to economic data suggesting the
worst of economic recession is over, oil has spent much of the
year moving in tandem with gains on equity markets and with
other commodities.
It has also been inversely correlated to the dollar, which
on Wednesday hit a one-year low against a basket of currencies,
as investors, no longer as nervous over potential losses, turned
to riskier assets. []
A weaker dollar can also fuel purchases of oil and other
dollar-denominated commodities, as they become relatively less
expensive to non-dollar holding investors.
A normally-tight-lipped OPEC delegate wrote in a Kuwaiti
newspaper on Wednesday that the Organization of the Petroleum
Exporting Countries may need to cut its oil supply next year to
match a fall in the group's crude demand. []
OPEC, supplier of more than a third of the world's oil,
estimated in a Tuesday report that crude demand would fall by
460,000 barrels per day in 2010 from 2009. []
"...which means OPEC will reduce supplies another time next
year to achieve balance," Mohammed al-Shatti wrote in a column
for Kuwait's al-Rai newspaper. []
(Additional reporting by Barbara Lewis and David Sheppard in
London; Editing by Keiron Henderson)
