Oil fell by more than 2 percent on Tuesday from near a 15-month high after China raised bank reserve requirements to keep the economy from growing too fast, and as cold weather that had been supporting US fuel demand began to subside. Surging Chinese oil demand had helped push oil prices to a 15-month high near $84 a barrel on Monday.
China's oil imports rose to a record of more than 5 million barrels per day in December. China, the world's No 2 oil consumer, raised the proportion of deposits that banks must hold in reserve by 0.5 percentage point in a move to stem inflation threats. Slower economic expansion in China could cut the pace of fuel demand growth. "China may be trying to limit its growth rate," said Gene McGillian of Tradition Energy in Stamford, Connecticut.
"Asian oil demand has been growing fast, but we haven't really seen demand growth kick in the United States or Europe." US crude for February delivery fell $1.73 to settle at $80.74 a barrel, after hitting $83.95 on Monday. In London, Brent crude fell $1.67 to settle at $79.30.
-- EIA cuts forecast for oil demand rise in 2010
-- US distillate stocks to fall, crude to rise: poll
Milder winter weather in the United States, the largest oil consumer, may cut heating oil demand. A weather pattern change during the next several days will bring an end to the very cold weather across the central and eastern United States, DTN Meteorlogix said Tuesday. After oil hit a 15-month high on Monday, "It's time for the financial investors to take profits," said Commerzbank analyst Carsten Fritsch.
"The prospect of milder temperatures may be another argument to take profit now." Deutsche Bank, in a research note, said it expected fundamentals of oil supply, demand and inventories - which remain well above five-year averages - to assert heavier influence on prices in 2010, tempering any price rallies.
"In our view, this would mean that rallies in the oil price above $80 a barrel will only become sustainable in 2011," Deutsche said in a 2010 commodities outlook. The US government's Energy Information Administration, in a monthly report Tuesday, cut a previous forecast for world oil demand growth in 2010 by 20,000 barrels a day, although it still predicts demand growth of 1.08 million barrels a day versus last year.
While oil inventories are brimming due to a year of falling global demand and ample supply, weekly US data due on Tuesday and Wednesday is expected to show the icy weather has eroded stockpiles of distillates, which include diesel and heating oil. Crude stocks were expected to rise.
Oil prices have risen from just below $75 on December 22, when the Organisation of the Petroleum Exporting Countries decided to leave its output policy unchanged. It meets next in March. The oil price is "fantastic" and oil demand is rising, Kuwait's oil minister, Sheikh Ahmad al-Abdullah al-Sabah, told reporters on Tuesday. "Next meeting will be the same... no change of course," he said.
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