| Updated at: 1429 PST, Thursday, September 09, 2010|
SINGAPORE: Oil pared gains on Thursday to stay below $75 as Chinese commodity futures tumbled in a widespread sell-off.
Market participants said the slide in China was linked to a government investigation of speculative funds in the Shanghai rubber market, which precipitated a decline across the board from zinc to soyoil to cotton.
"If it's severe enough, then you'll get concern in the general market and this might become a risk aversion play, into the dollar and off commodities," said Jonathan Barratt, managing director at Commodity Broking Services in Sydney.
U.S. crude for October added 10 cents to $74.77 a barrel at 0609 GMT, after rising as much as 60 cents to $75.27, approaching this week's high of $75.39 reached on Wednesday. ICE Brent crude gained 9 cents to $78.26.
Oil's early gains came on the back of an industry report on Wednesday showing U.S. crude stockpiles unexpectedly plunged last week, while easing concerns about the health of European banks reassured investors about bets on commodities.
"There are tentative signs of improving demand from what we saw last week," said Stefan Graber, a commodities analyst with Credit Suisse in Singapore. "That could suggest demand conditions are firming indeed."
U.S. crude stocks tumbled 7.3 million barrels last week, the American Petroleum Institute reported, versus analysts expectations for a 900,000-barrel gain. The drop came after imports fell sharply to 8.863 million barrels per day (bpd) from 9.209 million bpd in the previous week.
U.S. gasoline stocks rose by 654,000 barrels, compared with forecasts for a 900,000-barrel drop last week, the API said. Distillates including heating oil and diesel rose 1.3 million barrels, versus predictions for a 600,000-barrel rise.
Government statistics on inventories will follow on Thursday at 1500 GMT from the U.S. Department of Energy's (DOE) Energy Information Administration. The API and EIA reports were delayed by one day this week because of the U.S. Labor Day holiday on Monday.
"If the API drop is confirmed also by the DOE numbers, this would have a positive impact on sentiment for the rest of week," Graber said.