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Oil down 3 percent as market reappraises Canada wildfire impact

NEW YORK - Oil prices fell more than 3 percent on Monday after traders took in their stride the impact of wildfires on Canada's oil output and after another inventory build at the U.S. delivery hub for crude futures.

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Smoke and flames from the wildfires erupt behind a car on the highway near Fort McMurray, Alberta, Canada, May 7, 2016. REUTERS/Mark Blinch

NEW YORK - Oil prices fell more than 3 percent on Monday after traders took in their stride the impact of wildfires on Canada's oil output and after another inventory build at the U.S. delivery hub for crude futures.

The market rallied 2 percent earlier in the session as investors considered the loss of half, or more than 1 million barrels per day (bpd), of Canadian oilsands supply. Almost all of Canada's crude from oilsands is exported to the United States.

But with speculators already holding the largest number of wagers for a hike in U.S. crude's West Texas Intermediate futures since last summer and near-record high bullish bets on Brent, the scope for further gains was limited without clarity on the extent of damage to oil facilities or supply outages, analysts said.

"Positioning has been already very stretched in the oil market," Barclays Capital commodities strategist Miswin Mahesh said.

Oil prices have rebounded by some two-thirds since hitting 12-year lows of around $27 or lower in the first quarter, supported by falling U.S. production, unexpected supply constraints in Libya and the Americas as well as a weaker dollar.

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Adding to Monday's bearish sentiment was market intelligence firm Genscape's report of an inventory build of 1.4 million barrels at the Cushing, Oklahoma delivery hub for WTI futures.

WTI's front-month contract, June fell by $1.22, or 2.8 percent, to $43.44 a barrel by 12:08 p.m. EDT (1608 GMT). It had rallied as much as $1.28 in Asian trading.

Brent's front-month, July tumbled by $1.60, or 3.5 percent, to $43.77, after rising to $46.48 earlier.

July WTI meanwhile, hit its highest premium in more than three months to July Brent due the relatively superior performance of U.S. crude since the wildfire. The U.S. market typically trades at a discount to the European benchmark.

Some analysts said the wildfire could still be supportive as officials said resuming operations would be a challenge, with no timeline set.

"A loss of 1 million bpd spread over a month's time would represent a sizable 30 million barrels that would not necessarily be negated by an upswing in crude imports into the U.S. Gulf coast region," said Jim Ritterbusch of Chicago-based oil consultancy Ritterbusch & Associates.

Markets were also watching Saudi Arabia, the world's biggest oil exporter, where a government shake-up over the weekend included the appointment of Khalid al-Falih as head of the new Ministry of Energy, Industry and Mineral Resources.

"Changes in Saudi Arabia oil leadership only underscore the shift in strategy to one focused on market share over price," Morgan Stanley said.

Related Topics: ALBERTA
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