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Oil market pares gains following US stockpile report

Oil prices gave back some earlier gains on Wednesday, after a closely watched report showed a smaller-than-expected build in crude stockpiles. Traders had been wary following reports of that U.S. crude stockpiles are falling, fearing prices will remain subdued well in to 2016.

U.S. commercial crude inventories rose by 252,000 barrels to a total of 487 million barrels in the previous week, the Energy Information Administration reported.

Platts, the global energy and commodities information provider, said on Tuesday that U.S. commercial crude oil stocks were expected to show a build-up of 1.1 million barrels for the week ended Friday 13, according to a survey of analysts conducted on Monday.

Brent crude futures were up 37 cents at $43.94 per barrel by 10:41 a.m. EDT (1541 GMT) after settling 99 cents lower the day before. U.S. crude futures were up 17 cents at $40.84 a barrel.

Prices were supported earlier in the day after industry data released late on Tuesday by industry group American Petroleum Institute (API) surprised markets. The figures showed that U.S. crude stockpiles fell last week by 482,000 barrels, due to lower imports and higher refinery output, Reuters reported.

Education Images |UIG via Getty Images)

The API report surprised market-watchers, who had been expecting an eighth straight week of increasing U.S. stockpiles with analysts polled by Reuters forecasting a build of 1.9 million barrels.

Read MoreRecord oil stockpiles an 'unprecedented buffer': IEA

Stockpile build?

Earlier in October, oil prices snapped a winning streak after U.S. government data showed a large crude inventory build — the day after the API had reported a draw.

Oil prices had been supported at the start of this week amid tensions following the terrorist attacks in Paris last Friday and expectations of possible supply disruptions in the oil-rich but conflict-ridden Middle East.

Read MoreOPEC to mop up on oil; non-OPEC supply falls

Oil prices are a long way from the high of $114 a barrel seen in June 2014, as demand, despite growing, continues to lag supply — hence the build in global stockpiles.

Prices have not been helped by major oil producers, such as those belonging to the Oil Petroleum Exporting Countries, such as Saudi Arabia, deciding to maintain record levels of production in a bid to see off rival U.S. shale oil producers.

Oil to remain under pressure

Analysts believe oil prices are to remain under pressure well into 2016.

"In the short term, we find it difficult to believe that we're going to see a pick-up in oil prices," Steve Brice, chief investment strategist at Standard Chartered Wealth Management, told CNBC's "Capital Connection" Wednesday.

"If you see excess supply of around a million barrels per day and very scant signs of supply being taken off, obviously with Saudi Arabia taking the actions it has taken. We are seeing some taken off in the U.S. but it's clearly insufficient in our belief to help oil prices," he said.

Brice believed that the demand-supply balance could be reinstated later in 2016 but for the short-term, "oil prices are at least capped and could well go lower."

By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt.