Wires

UPDATE 7-Oil slips as focus shifts from Iran tensions to U.S. crude build

Jessica Resnick-Ault

* 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 comment, changes dateline from LONDON)

NEW YORK, Jan 9 (Reuters) - Oil prices retreated further on Thursday after sharp losses in the previous session, as the market shifted its focused towards rising U.S. crude stocks and away from fears of an imminent escalation of conflict between the United States and Iran.

Broadly, prices were moving back towards where they stood before the Jan. 3 U.S. drone strike that killed a top Iranian general, prompting an Iranian rocket attack on Iraqi air bases hosting U.S. forces. These events had pushed crude to its highest in four months.

"The way the market gives a geopolitical risk premium and then takes it right back indicates that the market fundamentally isn't very strong," said Gene McGillian, director of market research at Tradition Energy in Stamford, Connecticut. "A lot of participants in the market think that there's a lot of oil around the world that consumption doesn't take care of."

After falling 4.1% on Wednesday, Brent crude futures were down 1 cent at $65.43 a barrel by 12:44 p.m. ET (1544 GMT). West Texas Intermediate fell 16 cents to $59.45 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.

U.S. crude oil stockpiles rose 1.2 million barrels last week, the Energy Information Administration said on Wednesday, compared to analysts' forecasts for 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 and Shadia Nasralla in London Editing by Marguerita Choy and Jane Merriman)