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Oil bounces above $63 after slide, but glut worries persist

LONDON (Reuters) – Oil bounced above $63 a barrel on Wednesday to claw back some of the previous day’s 6 percent plunge, lifted by a report of an unexpected decline in U.S. crude inventories.

Oil pump jacks are seen next to a strawberry field in Oxnard, California February 24, 2015. REUTERS/Lucy Nicholson

The American Petroleum Institute (API) said on Tuesday that U.S. crude stocks last week fell by 1.5 million barrels, easing concerns for now that a supply glut is building up.

“The move yesterday was extremely sharp; after such moves you expect to have some rebound,” said Olivier Jakob, analyst at Petromatrix. “The API reported a stock draw – it is not a big one but at least it’s not a 10-million-barrel build.”

Brent crude LCOc1, the global benchmark, was up $1.00 to $63.53 per barrel at 1202 GMT and traded as high as $63.77. U.S. crude CLc1 gained $1.01 to $54.44.

But Wednesday’s bounce did little to reverse overall market weakness. Crude fell more than 6 percent in the previous session and world equities tumbled as investors grew more worried about economic growth prospects.

Brent has fallen by more than 25 percent since reaching a 4-year high of $86.74 on Oct. 3, reflecting concern about forecasts of slowing demand in 2019 and record supply from Saudi Arabia, Russia and the United States.

Worried by the prospect of a new supply glut, the Organization of the Petroleum Exporting Countries is talking about reducing output just months after increasing production.

OPEC, Russia and other non-OPEC producers are considering a supply cut of between 1 million barrels per day (bpd) and 1.4 million bpd at a Dec. 6 meeting, sources familiar with the issue have said.

Still, Saudi Arabia may find taking action to support prices harder, analysts say, with U.S. pressure to keep them low.

Riyadh could feel more inclined to heed U.S. demands after President Donald Trump promised on Tuesday to be a “steadfast partner” of Saudi Arabia despite saying Crown Prince Mohammed bin Salman may have known about a plan to murder journalist Jamal Khashoggi at the Saudi consulate in Istanbul.

“It is more difficult to expect a supply cut when you have the U.S. president giving full support to Saudi Arabia and asking Saudi to maintain low prices,” Jakob said.

Analysts at JBC Energy said Trump’s statement “highlights the potential for political fallout for Saudi itself from a hefty cut in production.”

Additional reporting by Henning Gloystein; Editing by Jason Neely and Edmund Blair

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