Oil falls to near $86 as China ups interest rates | business | Hindustan Times
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Oil falls to near $86 as China ups interest rates

business Updated: Feb 08, 2011 18:42 IST
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Oil prices fell to near $86 a barrel Tuesday as China hiked its key interest rate and fears eased that protests in Egypt could disrupt Middle East crude supplies.

By early afternoon in Europe, benchmark crude for March delivery was down $1.23 at $86.25 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.55 to settle at $87.48 on Monday.

In London, Brent crude fell $1.17 to 98.08 per barrel on the ICE Futures exchange.

Oil jumped above $92 to a 26-month high last week as violent clashes between supporters and opponents of Egyptian President Hosni Mubarak raised concern shipping through the Suez Canal - a major transit point for crude oil and cargo - could be affected. However, so far the political crisis has not affected crude supplies, and as the violence has waned this week, crude prices have slid back below $90.

"Egypt at the center of the crisis is evidently losing its ability to frighten markets. Initially feared disruptions ... are no longer seen as an acute threat," said a report from Commerzbank in Frankfurt. "Provided events do not escalate further, oil prices could retreat more."

The decision by China's central bank to raise interest rates for the second time in less than six weeks, however, was decidedly bearish for markets. Chinese authorities are trying to cool surging inflation that could pose a threat to political stability. "China's surprising move to raise interest rates ... added further pressure on the oil market amid concerns about the levels of Chinese oil demand," said analysts at Sucden Financial in London. Traders will also be watching closely the latest US crude inventory figures this week for insight into the strength of demand for oil. The American Petroleum Institute is scheduled to announce its supply data later on Tuesday while the Energy Department's Energy Information Administration reports on Wednesday.

"Improvement on virtually every economic front except the housing market has generally been surprising on the bullish side during recent months," Ritterbusch and Associates said in a report. "Most oil demand forecasts across this year may require some upward revisions especially if the employment picture improves enough to begin forcing some meaningful improvement in gasoline consumption." In other Nymex trading in March contracts, heating oil fell 1.86 cents to $2.6875 a gallon and gasoline lost 1.62 cents to $2.4343 a gallon. Natural gas futures dropped 2.8 cents at $4.076 per 1,000 cubic feet.