Oil drops below $60, gives up early gains

U.S. light crude for August delivery fell 45 cents to $59.69 a barrel by 1428 GMT -- on course for the seventh straight day of declines. London Brent crude eased 11 cents to $60.32 a barrel.

Earlier on Thursday, U.S. crude prices had rebounded as high as $61.62 after a 4 percent fall on Wednesday that meant oil was more than 15 percent lower so far in July.

Analysts said oil markets on Thursday were undermined when, after a bounce in European shares, U.S. equities turned lower shortly after the opening <.N>. The slide was given impetus by the breach of psychological support around the $60 a barrel mark.

This morning's bounce served notice that the equity and currency markets remain as formidable price influences to the oil, said Jim Ritterbusch, President of Ritterbusch and Associates in Galena, Illinois.

The crude, stock market and U.S. dollar are maintaining some correlation to reflect an expansion and contraction in risk appetite as additional economic input is received.

On Wednesday, bearish U.S. oil data highlighted how weak demand is in the world's largest energy consumer.

U.S. diesel and heating oil stocks have swelled to their highest level in almost 25 years after jumping by 3.7 million barrels last week, data from the Energy Information Administration (EIA) showed.

The drop in oil prices since the end of June was the longest and steepest decline so far in 2009. Prices had been rising since February, more than doubling from lows hit near $33, as traders started to price in an eventual recovery.

But many analysts cautioned prices had risen ahead of the real economy, with unemployment still climbing and global oil inventories mounting up.

The buy-side euphoria associated with the 'recovery trade' now clearly seems to have waned, MF Global analyst Edward Meir said.

The fragile state of the global economy dominated the annual G8 summit, with the United States, Japan, Germany, France, Britain, Italy, Canada and Russia acknowledging there were still significant risks to financial stability.

OPEC's 2009 World Oil Outlook has weighed further on sentiment as it said world demand for oil may take years to recover from the slump in 2009 because of economic weakness and demand destruction.

The Organization of the Petroleum Exporting Countries (OPEC) said consumption of its crude will not return to 31 million barrels per day (bpd), the level it averaged in 2008, until 2013.

(Additional reporting by Maryelle Demongeot in Singapore; Editing by Anthony Barker)