Oil prices steady as market undersupplied but virus clouds demand

* Growth in Chinese oil imports set to fall sharply

* Oil market deficit set to last but virus clouds demand (Updates prices)

By Noah Browning

LONDON, July 26 (Reuters) - Oil prices were steady on Monday as the spread of the COVID-19 Delta variant stoked fears over future fuel demand but supply looked set to be tight through the rest of the year.

Brent crude futures for September were up 5 cents to $74.15 a barrel at 1225 GMT, while U.S. Texas Intermediate crude was at $72 a barrel, down 7 cents.

Both benchmarks slipped over $1 a barrel in earlier trading.

Coronavirus cases continued to rise over the weekend with some countries reporting record daily increases and extending lockdown measures that could slow oil demand. China, the world's largest crude importer, has also seen a rise in COVID-19 cases.

Also, Beijing's crackdown on the misuse of import quotas combined with the impact of high crude prices could see China's growth in oil imports sink to its slowest in two decades this year, despite an expected rise in refining rates in the second half.

"The Delta variant is still spreading and China has started to clamp down on teapots so their import growth would not be that much," said Avtar Sandu, a senior commodities manager at Singapore's Phillips Futures, referring to independent refiners.

Strong U.S. demand and expectations of tight supplies have helped both contracts recover from a 7% slump last Monday to mark their first gains in 2-3 weeks last week.

Global oil markets are expected to remain in deficit despite a decision by the Organization of the Petroleum Exporting Countries and their allies to raise production through the rest of the year.

"There is seemingly a battle within the energy complex between the prevailing supply deficit engineered by OPEC+ and the threat of the COVID-19 Delta variant in regions with low-vaccination rates," said StoneX analyst Kevin Solomon.

"The slow-take up of vaccinations will continue to limit some upside in oil demand in those regions, and there will be intermittent spells in the recovery in the coming months." (Additional reporting by Florence Tan Editing by Bernadette Baum and Mark Potter)

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