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Brent pares gains as oil glut returns

London - Brent crude prices pared gains on Thursday as the market weighed a burst of optimistic news on demand against the global overhang of physical oil.

US stockpiles of crude and gasoline fell last week, data from the Energy Information Administration (EIA) showed on Wednesday, bolstering sentiment about the US market.

But US crude futures turned negative as problems with a major refinery in the US Midwest cast doubt on the country's ability to process its own crude oil.

Benchmark North Sea Brent crude oil was trading 20 cents higher at $49.86 a barrel at 12:48 after hitting a high of $50.39.

US crude was down by 20c at $43.10 per barrel.

Some market analysts were doubtful that Brent, which has fallen nearly 30 percent in the past three months, could hold on to its recent gains.

"This is short-term support ...there is still excess in oil production," said Abhishek Deshpande, lead oil market analyst at Natixis. "Once we are past the demand spikes and post-August high it will come under pressure again."

Traders said early signs of falling US oil production had been supportive for prices, but bearish signs came into focus on Thursday.

OPEC's second largest producer, Iraq plans to export near-record volumes of Basra crude in September, adding to an already oversupplied market.

The problems that took out BP's 165 000-barrel-per-day Whiting, Indiana, refinery have even raised concerns that the US oil storage hub at Cushing, Oklahoma, could fill in the coming months.

"The BP mishap could result in a backup in inventories in both Patoka and Cushing and result in a build in Cushing crude oil inventories in the coming weeks," said Dominick Chirichella, a US-based consultant.

Additionally, while the International Energy Agency said on Wednesday that it expects 2015 demand growth to hit a five-year high, China's shaky economic growth, and recent moves by Beijing to devalue its currency, cast doubt on its potential oil consumption.

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

"All is not well with the Chinese economy," Howie Lee of Phillip Futures told Reuters Global Oil Forum.

"There is so much pessimism attached to this move (yuan devaluation). For China to start a fresh currency war... smacks of desperation."

Falling margins at Asian refineries have led Chinese and Korean refiners to cut production, thus lowering their demand for crude oil.

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