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Oil dropped toward $41 a barrel in New York after an industry report pointed to a surprise increase in American crude stockpiles, countering optimism over a potential U.S. stimulus agreement.
The American Petroleum Institute reported crude inventories climbed by almost 600,000 barrels, according to people familiar with the data. That would be the second gain in three weeks if confirmed by government figures on Wednesday. Futures advanced on Tuesday as U.S. lawmakers moved closer to a package to bolster the economic recovery from the virus-driven downturn.
Oil’s recovery is facing pressure from a resurgent coronavirus and expanding supply from Libya, despite China offering some support to demand. OPEC+ has warned the market faces a precarious outlook, with key ally Russia saying that the group won’t be making any decision on the direction of its output cuts before a ministerial meeting scheduled for Nov. 30-Dec. 1.
“Oil fundamentals are weak and will come home to roost if the stimulus hopes are dashed again,” said Vandana Hari, the founder of consultancy Vanda Insights. “Crude is being held hostage by the U.S. stimulus drama.”
Brent’s prompt timespread was 35 cents a barrel in contango on Wednesday, compared with 51 cents at the start of the month. The narrowing spread signals that concerns about over-supply have eased.
U.S. gasoline and distillate supplies declined last week, while crude inventories at the key storage hub of Cushing increased by 1.17 million barrels, the API reported on Tuesday. Nationwide crude stockpiles were forecast to drop by 1.38 million barrels, according to the median estimate in a Bloomberg survey.
