Oil holds above $ 80 as Mexico storm worries brew

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SINGAPORE, Sep 27 (Reuters) Oil prices held above on Thursday, as traders balanced rising stockpiles in the United States against fears that a brewing storm could impact production in the Gulf of Mexico.

U.S. crude for November delivery rose 25 cents to .55 a barrel by 0206 GMT, after gaining 77 cents on Wednesday.

London Brent crude rose 34 cents to .77 a barrel.

A government report released on Wednesday showing U.S. crude stocks rose last week by 1.8 million barrels had briefly pushed oil prices deep into negative territory, before concerns over foul weather near Mexico's oil fields pushed them back up.

''The increase in inventories was unexpected, but more surprising is that oil bounced back, it's probably because of the overall downward trend of inventories and concerns about the weather in Mexico,'' said David Moore, commodities strategist at Commonwealth Bank.

U.S. crude oil stocks rose last week on an increase in imports and as refinery operations eased to their slowest pace since March, according to weekly government data issued on Wednesday.

Inventories of gasoline increased by 600,000 barrels, while distillate stocks jumped by 1.6 million barrels.

Traders are closely monitoring a tropical depression that formed on Tuesday in the southwest Gulf of Mexico.

While it was forecast to move westward slowly, away from Mexico's offshore platforms in the Bay of Campeche, traders are keenly sensitive to rough weather after a tropical depression briefly shut down nearly two-thirds of U.S. oil production in the Gulf of Mexico last week.

''Weather is always a factor as this time of year, the depression is probably supporting prices as it has the potential to disrupt supply,'' added Moore.

Oil has been under pressure since last week's peak near , due in part to concerns over economic growth amid a U.S. credit crunch, alongside profit taking.

REUTERS ARB PM0847

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