Oil falls almost 3 percent to $73 as China tightens

12. February. 2010

LONDON - Oil fell almost 3 percent toward $73 a barrel on Friday after a blow to the energy demand outlook by China's surprise decision to increase banks' reserve requirements for the second time this year.

Few in the market were expecting the Chinese central bank's move on Friday, which will raise the requirements from the end of this month. Analysts said it may tighten lending and slow a booming economy.

Rapid growth and development in China, the world's second largest energy consumer, has boosted oil prices in recent years.

The International Energy Agency (IEA) said on Thursday oil demand may have peaked in developed countries, but it still predicts world oil consumption will rise by 1.6 million barrels per day (bpd) this year to 86.5 million bpd due to emerging market growth.

U.S. crude for March delivery fell $2.03 to $73.25 a barrel by 1526 GMT (10:56 a.m. EST), after settling 76 cents higher at $75.28 a barrel on Thursday. Brent crude for the new front month of April fell $1.84 to $72.28.

"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 U.S. dollar rose to its strongest level against the euro since May 2009 on the news, as investors moved away from riskier assets. A stronger greenback often pressures commodities priced in dollars as they become more expensive for holders of other currencies.

Concerns about debt-stricken Greece also weighed on sentiment across markets, with no concrete bailout plan emerging from a meeting of European leaders on Thursday. Greek Prime Minister George Papandreou on Friday blamed bickering among EU bodies for delaying support for his country.

U.S. OIL DATA

Despite Friday's dip, oil is on track for a 2 percent rise this week, led by signs of higher heating demand due to U.S. snowstorms and a bullish global oil demand forecast from the

IEA.

Traders will also scour weekly U.S. oil inventory data on Friday from the Energy Information Administration (EIA) for further clues on demand in the world's largest consumer.

The EIA data was delayed until Friday at 1600 GMT from its usual Wednesday release because of the severe snowstorms that have swept the U.S. East Coast.

A report from the American Petroleum Institute (API) on Tuesday showed U.S. crude inventories jumped by 7.2 million barrels to 337.6 million last week, despite a drop in crude imports, against expectations of a 1.5 million rise.

"The EIA inventory numbers are on tap for Friday, and should they come in with substantial builds we could see crude oil prices roll back some of their recent gains," MF Global analyst Edward Meir said.
[Reuters]