Oil dipped below $61 a barrel on Thursday after gaining more than 3 percent in the previous session, as investors remained cautious about the pace of economic recovery despite strong growth numbers from China.
While better-than-expected gross domestic product (GDP) growth from China, the world's second largest energy consumer, has supported crude prices, analysts said persistent worries about underlying weak energy demand was keeping prices in check.
U.S. oil for August delivery eased 56 cents to $60.98 a barrel by 1153 GMT (7:53 a.m. EDT), after gaining 3.4 percent on Wednesday. London Brent crude slipped 59 cents to $62.50 ahead of the August contract's expiry later on Thursday.
There's no doubt that the Chinese GDP numbers are positive and would provide an underlying support for crude, said Victor Shum, a Singapore-based analyst at Purvin & Gertz.
But sentiment is still cautious and investors are also somewhat skeptical of an economic recovery anytime soon, particularly in the U.S. where unemployment is still very high.
China's growth rate jumped in the second quarter to 7.9 percent from 6.1 percent in the first quarter due to a surge in state spending and bank lending. China is the best-performing major economy in the world.
Asian shares powered to a one-month high on the news, but the reaction in Europe was muted as the depth of the economic downturn in the region has left many investors wary. <.EU>
Also highlighting the ongoing problems facing the world economy is the looming bankruptcy of CIT Group Inc
Oil's large gains on Wednesday came after the U.S. Energy Information Administration (EIA) said commercial crude oil stocks fell 2.8 million barrels last week, against market expectations of a 1.6 million barrel fall.
The fall in crude stocks overshadowed a larger-than-expected rise in U.S. gasoline supplies over the Fourth of July Independence Day holiday weekend -- the traditional peak of the U.S. summer driving season.
A rally in the equities markets, along with a weak U.S. dollar, which traded near a one-month low against major currencies, also supported oil prices.
The prices are pulling back after the rally yesterday and ahead of the expiry of the Brent contract, VTB Capital analyst Andrey Kryuchenkov said.
The move up in equities was supportive but we're likely to see a pullback today as the EIA fuel stocks data was so mixed. The jobless claims figures later today are the next event, as oil is tracking risk sentiment and equities at the moment.
Investors will be keenly watching the U.S. jobless claims data due to be released at 1230 GMT (8:30 a.m. EDT)on Thursday. U.S. energy demand has fallen sharply during the recession due to high unemployment and lower industrial production.
Oil prices have lost almost 15 percent since peaking above $73 a barrel at the end of June. Prices hit a near two-month low of around $58 a barrel earlier this week.
(Additional reporting by Fayen Wong in Perth; Editing by Keiron Henderson)