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Oil pares losses with stronger equities offsetting supply fears

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Oil recovered some of its losses with a rally in equities providing support to prices even as industry data pointed to a surprise increase in American crude stockpiles.

Futures in New York were slightly lower after falling as much as 2.3% earlier on Thursday. U.S. equities rebounded for a second day, with the S&P 500 Index climbing as much as 0.8%.

The American Petroleum Institute reported on Wednesday that crude stockpiles climbed by almost 3 million barrels last week, according to people familiar with the data, though gasoline inventories shrank by 6.89 million barrels.

If confirmed by a U.S. government report on Thursday, the build in oil supplies would be the first in seven weeks.

Meanwhile, China’s next five-year plan beginning in 2021 will call for increases to its mammoth state reserves of crude, strategic metals and farm goods, said officials with knowledge of the discussions, a potentially bullish driver for crude in the longer term.

“The risk appetite is picking up again,” as equities rebound, said Bart Melek, head of global commodity strategy at TD Securities. “We’re reversing some of those corrections we’ve seen over the last few days.”

Concerns over rising American crude stockpiles come as global oil demand is expected to decline over 8 million barrels a day this year and likely won’t get back to 2019 levels before 2022, according to S&P Global Platts.

At the same time, the Organization of Petroleum Exporting Countries and its allies are unleashing crude back onto a market that’s still working through the inventory glut it built up earlier this year.

“Uncertain oil-market fundamentals are holding prices back,” said Jens Pedersen, a senior analyst at Danske Bank. The “climb in U.S. crude stocks plays into the market worries over weak demand.”

Prices –

West Texas Intermediate for October delivery fell 34 cents to $37.71 a barrel at 10:14 a.m. in New York

Brent for November settlement lost 27 cents to $40.52 a barrel

Elsewhere, there are signs it will take longer than initially anticipated to return to pre-coronavirus levels of energy demand. Since the start of the month, road traffic has grown in Europe and Asia, though the picture is uneven in the Americas, adding to oil’s mixed outlook.

The onset of the refinery maintenance season is also clouding prospects for consumption already devastated by the pandemic.

Brent’s six-month timespread was $2.71 a barrel in contango — where prompt prices are cheaper than later-dated ones — compared with $1.97 at the end of August.

The change in the market structure indicates growing concern about a glut and may also, together with falling tanker rates, incentivize floating storage.

Other oil-market drivers

Turkey is in talks over oil and gas exploration in Libya, as President Recep Tayyip Erdogan’s administration seeks business opportunities in the conflict-ridden North African country.

GP Global Group, a United Arab Emirates-based commodities firm, is seeking to sell oil-storage terminals, fuel barges and other assets to repay creditors after trying unsuccessfully to find a buyer for its trading units, according to people involved.

BP Plc, the oil giant that announced a seismic strategy shift last month, made its first venture into offshore wind power with a $1.1 billion purchase of U.S. assets from Norway’s Equinor ASA.

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