Oil slips below $83 as China signals tighter policy
Oil fell from 15-month highs to below $83 a barrel as signs of tighter monetary policy in China sparked concerns about demand growth.
Oil fell from 15-month highs to below $83 a barrel on Thursday as signs of tighter monetary policy in China sparked concerns about demand growth in the world's second-largest energy consumer.
China's central bank surprised markets by raising the interest rate in a three-month bill auction, which the markets took as a signal of policy tightening, putting pressure on commodities and clipping 10 straight days of gains for oil.
China's rapidly expanding economy and its burgeoning thirst for oil has been seen as one of the main reasons crude prices have more than doubled in the past 12 months, despite the lingering impact of the economic crisis.
U.S. crude for February delivery fell 45 cents to $82.73 a barrel by 11:35 a.m. EST (1635 GMT), off Wednesday's 15-month high of $83.52. London Brent crude fell 45 cents to $81.44 a barrel.
"Crude oil edged lower on speculation that China's move to slow bank lending may reduce commodity demand in the country," Addison Armstrong, analyst at Tradition Energy in Stamford, Connecticut, said in a note.
Crude had shrugged off news of higher U.S. oil inventories on Wednesday to post its 10th straight session of gains, extending a near $11 rally on expectations freezing temperatures across much of the United States would eventually cut into bulging stocks.
Arctic winds have pushed down into the Northern Hemisphere, freezing Europe and parts of Asia, and boosting demand for heating in the United States by some 21 percent above normal.
European energy demand has also surged, especially in Britain and France, while heavy snow and record low temperatures in China prompted cities across eastern and central parts of the country to begin rationing power.
Analysts said investment flows from funds at the beginning of the new year were also likely to be responsible for part of the recent rise in prices.
"We still fail to see any compelling fundamental reason why crude oil prices are where they are. The weather is cold, but it was also cold at this time last year when prices plunged to $33 a barrel," MF Global analyst Edward Meir said.
"We suspect a more logical reason for the rally has to do with the fact that, egged on by a struggling dollar and a benign interest rate environment, money is flowing into commodities at a heady pace."
The number of U.S. workers filing new applications for unemployment insurance rose less than expected last week, the Labor Department said on Thursday.
Monthly non-farm payrolls data on Friday will give further indication of the pace of recovery in the world's largest energy consumer. James Bullard of the St. Louis Federal Reserve Bank said the economy is close to the point where unemployment will start to fall.
Oil markets have been looking to wider economic data for positive signs that could boost energy demand.
Price support also came from the continuing talks between Belarus and Russia over the supply of Russian oil for 2010.
Belarus has insisted Russia should continue billions of dollars in oil subsidies, complicating talks aimed at resolving a dispute over a pipeline that brings 10 percent of Europe's crude. Russia's energy minister said talks were continuing on Thursday.
Reuters Last Mod: 07 Ocak 2010, 19:23