Wires

UPDATE 5-Oil steadies around levels prevailing before U.S.-Iran attacks

Shadia Nasralla

* Oil prices back to year-end levels

* Iranian commander quoted on plans for 'harsher revenge'

* President Trump pulls back from new military action

* Graphic on U.S. petroleum stocks: https://tmsnrt.rs/35DZduT (Updates prices, adds detail on Iranian media reports)

LONDON, Jan 9 (Reuters) - Oil prices steadied on Thursday after the previous session's sharp losses on the back of swelling U.S. crude stocks and easing fears of imminent escalation of conflict between the United States and Iran.

Prices were hovering around where they stood before the Jan. 3 U.S. drone strike that killed a top Iranian general, prompting an Iranian rocket attack on Iraqi airbases hosting U.S. forces, and sent crude to its highest in four months.

Brent crude futures moved up and down in early European trading after a 4.1% fall on Wednesday. By 1322 GMT Brent was down 5 cents at $65.39 a barrel. West Texas Intermediate was up 3 cents at $59.64 after sliding nearly 5% the previous day.

During European trading hours Iranian media carried reports of military commanders speaking of further action aimed at expelling U.S. troops from the region.

U.S. President Donald Trump had eased tensions by stepping back from further military action, depressing oil prices and diverting attention back to a surprise build in U.S. crude stockpiles last week.

Crude oil stocks were up 1.2 million barrels in the week ended Jan. 3 at 431.1 million barrels, the Energy Information Administration said on Wednesday.

Analysts in a Reuters poll had expected a drop of 3.6 million barrels.

JPMorgan analysts maintained their forecast for Brent to average $64.50 a barrel this year.

Top oil producers led by Saudi Arabia have agreed to reduce output by as much as 2.1 million barrels per day (bpd) through the first quarter of 2020.

"As geopolitical tensions appear to enter a new equilibrium ... the overall supply conditions in the market tend to favour oil reverting lower," Harry Tchilinguirian, oil strategist at BNP Paribas in London, told the Reuters Global Oil Forum.

"U.S. crude oil production remains at a record 12.9 million bpd ... it is not evident in our opinion that OPEC and its non-OPEC allies will fully implement the incremental supply cuts."

Meanwhile, oil and gas ship owners are bracing to pay a price for U.S.-Iranian tensions in the form of higher insurance bills, which could add hundreds of thousands of dollars to shipping costs that would ultimately be passed on to fuel buyers, mostly in Asia.

(Additional reporting by Aaron Sheldrick in Tokyo Editing by Jan Harvey and David Goodman)