By Sambit Mohanty
SINGAPORE (Reuters) - Oil was steady above $71 on Wednesday after data showed a surprise drawdown in U.S. crude inventories, pausing for breath after a rally in which the market has gained 13 percent since late last week.
U.S. crude, which lost 0.2 percent a day earlier, found support earlier in the day after American Petroleum Institute data showed crude stocks unexpectedly fell 1.5 million barrels last week, adding to positive news from buoyant stock markets and a dollar that hovered near 2009 lows.
But later in the day, it gave up gains. U.S. light, sweet crude was unchanged $71.42 a barrel by 0625 GMT, while ICE Brent crude gained 17 cents to $74.45 a barrel. The market is still trading at less than half the record highs of over $147 it hit in July 2008.
"The market is reacting to the news from the API but I think in the next few months there will be a downward bias for oil. Supplies are quite adequate to meet demand," said David Moore, commodity strategist at the Commonweath Bank of Australia.
Trading should remain subdued while the market waits to see if data from the U.S. Energy Information Administration, due to be released later on Wednesday, is in line with the API numbers.
A Reuters poll of analysts forecast an 800,000-barrel build in crude stocks in the week to July 31. The poll also predicted a 1.2-million barrel rise in distillate stocks and a 1.0-million barrel drop in gasoline stocks.
Optimism that a potential turnaround in the global economy could lift sagging oil demand has helped send crude up from lows below $33 a barrel in December, with energy traders keeping an eye on equities markets for signs of an economic rebound.
"Equities is one of the key drivers for the oil market now and I feel oil could break $75," said Daniel Liu, an energy strategist at MF Global Singapore.
Japan's Nikkei average was almost flat on Wednesday, with investors taking a breather after the index set a 10-month closing high the previous day.
Pending sales of previously owned U.S. homes rose at a faster-than-expected pace in June, advancing for the fifth month in a row, according to the National Association of Realtors, a real estate trade group.
Energy traders also were watching an area of thunderstorms in the Atlantic Ocean several hundred miles southwest of the Cape Verde Islands associated with a tropical wave. The U.S. National Hurricane Center said it had less than a 30 percent chance of becoming a tropical storm.