(Reuters) - Brent crude held steady above $102 per barrel on Monday on optimism over the outlook for demand growth as China's Premier Wen Jiabao said the government would step up efforts to boost the economy of the world's second-largest oil consumer.
Oil prices rallied on Friday after China's economy expanded in line with expectations, easing concerns a slowdown in Europe was hurting a lot more than expected. Even though growth slowed for the sixth successive quarter, Asian shares and the euro extended their rally on Monday on signs the steps Beijing has taken so far were underpinning the economy.
Brent crude rose 6 cents to $102.46 a barrel by 0638 GMT. Prices settled $1.33 higher on Friday, crossing the 50-day moving average below $102 for the first time since April.
U.S. oil fell 27 cents to $86.83 a barrel, after ending $1.02 higher. The contract also pushed above its 50-moving average of $87.50 for the first time since May on Friday.
Short-term sentiment should be good for oil as well as other risk assets. It is a combination of two factors -- China's growth coming in in line with expectations and hopes for more measures to boost the economy, said Ben Le Brun, a markets analyst at OptionsXpress in Sydney.
We are seeing prices come off a bit due to profit-taking. Any dips will face quite strong support levels.
China's Wen said efforts to stabilize the economy were working and the government would step up efforts in the second half of the year to increase policy effectiveness and foresight, the Xinhua news agency reported on Sunday. He said the economy was running at a more stable pace of growth.
Prices are also drawing support from hopes Europe's fiscal crisis will stabilize after Chancellor Angela Merkel said on Sunday she was confident a majority of German lawmakers would back aid for Spain's ailing banks.
International risk markets are beginning to reposition for the possibility that the current international economic downturn is bottoming, said Ric Spooner, chief market analyst at CMC Markets, in a report.
Confidence, although brittle, has the potential for further improvement against a background of ongoing stimulus initiatives in China and stabilization of the situation in Europe.
A fresh warning by Iran to block the Strait of Hormuz, a conduit for 40 percent of the world's sea-borne oil exports, if its security is threatened, is also supporting prices. Tehran will increase its military presence in international waters, said Ali Fadavi, naval commander in Iran's elite Islamic Revolutionary Guard Corps (IRGC).
Brent has slipped 20 percent from the highs for the year touched in March despite concerns over supply disruptions in the Middle East as investors worry about demand growth amid a slowdown in the West.
A slew of announcements over the weekend that have helped improve the supply outlook are, however, capping price gains.
Yemen's oil minister said on Sunday the country may be able to resume exports as planned this week after tribesmen agreed to allow repairs to its main crude pipeline.
The presidents of Sudan and South Sudan on Saturday held their first talks since their countries came close to war in April, raising hopes for a negotiated settlement of oil and border disputes before an August 2 U.N. Security Council deadline.
The United Arab Emirates loaded its first cargo on Sunday from its long-awaited new oil export terminal on the Gulf of Oman as Iran renewed its threat to close the Strait of Hormuz.
Brent will retrace to $101.26 per barrel as a corrective wave cycle has been completed on the rise from the July 10 low of $97.73 to $103.44, while U.S. oil will rise to $88.98 per barrel after a moderate correction to $86.07 per barrel, according to Reuters technical analyst Wang Tao.
(Editing by Himani Sarkar)