Oil fell to fresh four-week lows on Friday as equity markets slumped and commodities remained under pressure from US President Barack Obama's proposed tightening of bank trading rules. US crude fell $1.54 to settle at $74.54 a barrel, the lowest settlement since December 22, breaking below the 100-day moving average of $75.20. ICE Brent crude fell $1.75 to settle at $72.83.
Obama's proposals to cut proprietary trading raised the possibility of banks and funds re-evaluating their involvement in the commodities sector, where they have boosted their presence heavily. Energy markets also remained concerned that China's move this week to restrain credit and cool economic growth will curb oil demand.
"Traders were selling in response to a number of factors: Chinese credit tightening, (proposed) sweeping new US banking and trading changes and this week's DOE snapshot of demand were all seen as bearish factors," said Peter Beutel, president of Cameron Hanover in New Canaan, Connecticut.
The US Energy Information Administration's inventory report on Thursday showed that, while crude inventories fell slightly last week, gasoline stockpiles were up sharply and refinery utilisation dived. Investors have looked to wider economic data over the past year for signs of economic recovery and a potential rebound in energy demand. On Friday, Wall Street slipped as the bank restrictions weighed and falling technology shares dragged stocks lower.
The full implications of Obama's proposals had yet to play out, analysts said. "The potential consequences are huge, and the continued strength and liquidity of markets will depend on how effectively the banks and their employees are able to reorganise and adjust to the new regime, if and when it comes into force," leading oil brokerage PVM said in a note.
Oil prices rose to 15-month highs near $84 a barrel in early January, partly due to an influx of money following a hike in fund allocations. "Potentially, some funds will need to revise their exposure for the second half of the year," said Petromatrix analyst Olivier Jakob, referring to both Obama's plan and the package of proposals unveiled last week by the US futures regulator, the Commodity Futures Trading Commission.
"For now, it will weigh on sentiment in a global sense," said Jakob. Concerns that oil-consuming nations could take steps to temper growth may also weigh on prices, analysts said. The world's No 2 oil consumer China reported fourth-quarter growth of 10.7 percent on Thursday, its first double-digit figure since 2008. "Any efforts by the Chinese government to slow the economy would affect demand for raw materials," said Serene Lim, a Singapore-based oil analyst at ANZ.