Oil steadies near 2-year high on demand doubts
Singapore, December 27, 2010
Oil steadied near two-year highs on Monday as uncertainty over Chinese fuel demand growth following a Christmas Day interest rate hike offset a blizzard in the US Northeast.
US crude for February nudged three cents lower to $91.48 a barrel by 0512 GMT, after hitting a 26-month high of $91.63 the previous session. ICE Brent crude rose 44 cents to $94.21.
China's central bank raised interest rates on Saturday for the second time in just over two months as it stepped up its battle to rein in stubbornly high inflation.
'China's interest rate hike is having some impact on the oil markets... because of concerns over how the tightening of monetary policy will impact demand growth,' said Serene Lim, an oil analyst at ANZ.
When China last raised interest rates in mid-October, oil tumbled 4 per cent. Prices quickly recovered and have since rallied by around 15 per cent on abnormally cold weather in the northern hemisphere and an unexpected surge in fuel demand.
While markets had expected a rate rise, the timing was a surprise. Most markets recovered from early losses on expectations the measures would do little to curb China's appetite for industrial raw materials, energy, grains and other agricultural products.
Rising oil prices led China to boost fuel prices by 4 per cent earlier this month, but analysts believe the price hike was too modest to have a significant impact on demand.
US refinery restarts
Oil prices also came under pressure from the restarting of a major US gasoline refinery.
The gasoline-making fluid catalytic cracker at Hovensa LLC's 500,000-bpd Virgin Islands refinery resumed operations on Friday after an over two-week unplanned outage.
The unplanned outage contributed to extended tightness in the New York harbour gasoline market that had helped drive oil prices higher.
US gasoline futures eased 0.77 cents to $2.4346 a gallon.
Oil's decline was limited by the first widespread blizzard of the season in the northeastern United States, the world's top heating oil market.
An unusually cold winter in the world's largest oil user has contributed to a huge depletion of crude stockpiles, which have fallen at the fastest pace in more than a decade.
Oil's climb has sparked inflationary worries, not only in China, but also India, South Korea and other major fuel-importing countries.
However, Kuwait's oil minister said the global economy can withstand an oil price of $100 a barrel, while other exporters indicated Opec may decide against increasing output through 2011 as the market was well supplied.
Qatar's Minister Abdullah al-Attiyah said he did not expect Opec to increase production in 2011. Opec's next scheduled meeting is in June. – Reuters