Oil falls on supplies and concerns about China

08:57, January 21, 2011      

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Oil prices sank yesterday on fresh concerns that demand could weaken if China takes more steps to control its economic growth.

Benchmark oil for March delivery lost US$2.22 to settle at US$89.59 a barrel on the New York Mercantile Exchange.

New data showed China's economy grew 9.8 percent in the fourth quarter despite several steps that the government has taken to try to slow growth and curb surging prices.

The news sent most commodities lower as traders speculated that China's government may try further measures to control inflation. China has had a robust appetite for commodities such as oil, copper and soybeans as its economy has boomed this year while the U.S. and Europe have seen slower growth.

"The market realizes that they're at kind of a crossroads here and that they better take steps to slow inflation because if they don't, they're going to have real problems," PFGBest analyst Phil Flynn said .

The extent of any new moves by the government will be a "critical factor" for the oil market this year, Cameron Hanover said in a report. An interest rate hike or increase in reserve requirements is the type of move that has been "the overarching fear holding a number of asset prices back," the energy consultants said.

Oil prices were also pushed down by the Energy Department's weekly report that showed growing U.S. stockpiles of oil, gasoline and distillates, which include heating oil and diesel fuel. All are higher than the five-year average, an indication that energy demand remains tepid.

The Energy Information Administration said natural gas supplies fell more than expected last week, as very cold weather covered much the country. But supplies are still about 2 percent above the five-year average.

Natural gas for March delivery rose 1.16 cents to settle at US$4.692 per 1,000 cubic feet on the Nymex.

In other Nymex trading, heating oil lost 3.30 cents to settle at US$2.6232 a gallon, and gasoline gave up 5.91 cents to settle at US$2.4225 a gallon.

In London, Brent crude declined US$1.58 to settle at US$96.58 a barrel on the ICE futures exchange.

Source: Shanghai Daily
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