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  • January 20th, 2011

Oil Drops a Third Day as China Inflation Fans Concern Fuel Demand May Slow

Oil fell for a third day, the longest losing streak in nine weeks, as inflation in China bolstered speculation the world’s biggest energy user will take more steps to cool the economy and slow fuel demand.

Futures dropped as much as 0.8 percent after China said inflation was 4.6 percent in December as the economy expanded faster than forecast. The country raised interest rates twice in 2010 and increased bank-reserve requirements on Jan. 14. Crude inventories in the U.S., the largest oil consumer, gained the most in eight weeks, the industry-funded American Petroleum Institute said yesterday.

“Strong economic data from China may be considered bad news as the country may fight inflation by tightening the money supply,” said Victor Shum, a Singapore-based senior principal at Purvin & Gertz Inc., a consultant. “The API data showed a substantial build contrary to what people are expecting.”

Crude for March delivery, the most active contract, declined as much as 71 cents, to $91.10 as barrel in electronic trading on the New York Mercantile Exchange. It was at $91.17 at 4:01 p.m. Singapore time. The February contract, which expires today, was down 69 cents at $90.17. Futures yesterday settled at $90.86, the lowest since Jan. 10.

Brent crude for March settlement dropped as much as 61 cents, or 0.6 percent, to $97.55 a barrel on the London-based ICE Futures Europe exchange. Yesterday, the contract added 0.4 percent to $98.16, the highest settlement this week.

China’s Expansion

China’s economic growth accelerated to 9.8 percent in the fourth quarter as industrial production and retail sales rose. The expansion rate exceeded the 9.4 percent median estimate in a Bloomberg News survey of 22 economists.

Growing pressure on China to tighten monetary policy overshadowed data showing the country processed a record amount of oil in December. Refiners converted 38.7 million metric tons, or about 9.2 million barrels a day, of crude into fuels, according to the Beijing-based China Federation of Logistics and Purchasing.

“The crude processing numbers haven’t affected the market at all,” said Shum at Purvin & Gertz. “The API numbers seem to have overwhelmed the processing numbers.”

U.S. crude stockpiles increased 3.53 million barrels to 340.6 million in the week ended Jan. 14, the biggest gain since Dec. 24, according to the API. An Energy Department report today may show supplies fell 500,000 barrels, based on the median estimate of 17 analysts surveyed by Bloomberg News.

Weekly Gain

U.S. gasoline stockpiles rose 1.9 million barrels to 230.9 million last week, the API said yesterday. Distillate fuel supplies, including diesel and heating oil, climbed 940,000 barrels to 167.4 million. That’s an eighth weekly gain, the longest stretch since July 2009.

The Energy Department may report an increase of 2.5 million barrels in gasoline stockpiles and distillate supplies climbing 1 million, the Bloomberg News survey showed.
The department is scheduled to release its weekly report at 11 a.m. in Washington, a day later than usual because of the Martin Luther King Jr. Day holiday on Jan. 17.

Source: Bloomberg

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