By Christopher Johnson
LONDON (Reuters) - Oil prices steadied on Monday as tension over the disappearance of a prominent Saudi journalist stoked supply worries, balancing concerns over the long-term demand outlook.
Benchmark Brent crude oil jumped by $1.49 a barrel to a high of $81.92 before giving up its gains to trade around $80.38, down 5 cents, by 1345 GMT. U.S. crude was down 5 cents at $71.29.
"Growing tensions over the disappearance of journalist Jamal Khashoggi at the Saudi consulate in Istanbul has proved supportive," said ING commodities strategist Warren Patterson.
Saudi Arabia has been under pressure since Khashoggi, a critic of Riyadh and a U.S. resident, disappeared on Oct. 2 after visiting the Saudi consulate in Istanbul.
U.S. President Donald Trump threatened "severe punishment" if it is found that Khashoggi was killed in the consulate.
Saudi Arabia said it would retaliate to any action against it over the Khashoggi case, state news agency SPA reported on Sunday, quoting an official source.
"This has raised concerns that the Saudis may use oil as a tool for retaliation if any sanctions or other action is taken against it," Patterson said.
But analysts said it was difficult to imagine Saudi Arabia taking action that would greatly affect world oil supply.
"So far the oil market is withstanding the verbal war and though prices are slightly higher ... they are a good $5 below the peak last week," said City Index analyst Fiona Cincotta.
Exerting downward pressure on prices, Friday's monthly report from the International Energy Agency said the market looked "adequately supplied for now" and cut its forecasts for world oil demand growth this year and next.
OPEC, Russia and other oil producers, such as U.S. shale companies, had increased production sharply since May, the IEA said, raising world crude output by 1.4 million barrels per day (bpd).
"These (factors) are very bearish for oil prices," said Commerzbank commodities analyst Carsten Fritsch.
The secretary general of the Organization of the Petroleum Exporting Countries last week said that the group saw the oil market as well supplied and that it was wary of creating a glut next year.
(Reporting by Christopher Johnson in London and by Meng Meng and Aizhu Chen in Beijing; Editing by David Goodman)
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