Oil fell more than a dollar to $74 a barrel on Friday, weighed down by rising US crude inventories and concerns that China's unexpected move to lift bank reserve requirements could slow commodity demand in the world's No 2 fuel consumer. China's central bank said it would boost bank reserve requirements for the second time in less than a month, a move that could limit bank lending and slow the economy.
US crude for March delivery fell $1.15 to settle at $74.13 a barrel, falling as low as $72.66 in intra-day trade and breaking a four-day rally. Brent crude for the new front month of April traded down $1.22 to settle at $72.90 a barrel.
"China's move to tighten credit is dominating the trade in crude oil," said John Kilduff, partner at hedge fund Round Earth Capital in New York. Oil was also pressured by US government data showing crude oil and gasoline stockpiles rose more than expected last week in the world's top energy consumer and by the US dollar's rise to a nine-month high against the euro.
US crude stocks rose by 2.4 million barrels last week, the Energy Information Administration said, exceeding forecasts for an increase of 1.5 million barrels. Gasoline stocks also rose more than forecast. "You couldn't ask for a more bearish report. It speaks to the continuing lack of demand in the US market," said Brad Samples of Summit Energy in Louisville, Kentucky.
The bank reserves move in China, where demand for oil has been rising fastest, is a sign the Chinese government is vying to prevent the economy from over-heating, analysts said. "Markets may view it negatively in the short-term as China might import less commodities," Barclays Capital analyst Amrita Sen said. "But in the longer term we definitely see it as beneficial for commodity demand. The worst thing that could happen to commodity markets would be for China's growth to shoot to 15 percent then crash to 5 percent. The policy of tightening keeps their growth on a far more sustainable path."
The US dollar rose to its strongest level against the euro since May 2009, as China's move and uncertainty surrounding a bailout plan for debt-stricken Greece pushed investors away from riskier assets. A stronger greenback often pressures commodities priced in dollars as they become more expensive for holders of other currencies. Greek Prime Minister George Papandreou on Friday blamed bickering among EU bodies for delaying support for his country after no concrete bailout plan emerged from a meeting of European leaders on Thursday.