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Oil prices slip as market frets about Chinese demand

by Staff Writers
New York (AFP) Jan 26, 2010
Oil prices resumed their downward movement Tuesday as the market fretted about China's moves to tighten credit to cool economic growth that could weaken energy demand in the Asian giant.

New York's main futures contract, light sweet crude for delivery in March, slid 55 cents to close at 74.71 dollars a barrel.

In intraday trade, the futures contract fell to 73.82 dollars, its lowest prices since December 22.

In London, Brent North Sea crude for March shed 40 cents to settle at 73.29 dollars.

The market had rebounded Monday after last week's selloff, buoyed by receding doubts that US Federal Reserve chairman Ben Bernanke would be confirmed by the Senate for a second term that reduced uncertainty over the central bank's near-zero interest rate policy.

"The growing concerns over the Chinese banking sector and the continuing tightening of Chinese credit may quickly dampen some of that bullish enthusiasm," said Phil Flynn of PFG Best.

"The concern for the energy markets is that this will slow manufacturing leading to a major slowdown in oil demand growth for the country," Flynn said.

Victor Shum, an analyst at energy consultants Purvin and Gertz, agreed.

Prices were driven lower on "concerns that China might further restrict bank lending," he said.

Policymakers in China have taken steps to tighten credit in a bid to slow its roaring economy, which grew by a sizzling 10.7 percent in the fourth quarter of last year.

China is the world's second-largest consumer of oil, after the United States.

Prices slumped last week on the growing concerns about Chinese economic policy and after US President Barack Obama unveiled plans to crack down on the US financial sector, hitting overall investor confidence.

"A fall of almost 10 dollars in just over two weeks shows the market's weakness," said Mike Fitzpatrick of MF Global.

"Clearly, the sentiment pendulum has shifted towards pessimism about the pace and sustainability of recovery," he added.

Fitzpatrick said that Wednesday's official data on US energy stockpiles were expected to show crude oil stocks continued to grow.

The Centre for Global Energy Studies said in a monthly report published Tuesday that world oil demand had risen in the fourth quarter after falling the previous five quarters, but recovery was still "fragile."

"Global oil demand has finally turned the corner, with oil use in the fourth quarter of 2009 up on the fourth quarter of 2008 after five consecutive quarters of year-on-year decline," the London-based CGES said.

"The recovery in oil use remains fragile, though, and concentrated in developing countries."

The CGES also cautioned that supply and demand conditions would not warrant higher prices this year.

"Despite rising demand, market fundamentals are not expected to support upward pressure on oil prices in 2010," it said, noting that only "temporary" factors had boosted the market in recent months.

"The recent surge in oil demand has been boosted by temporary seasonal factors, driven by extremely cold weather across much of the northern hemisphere which is unlikely to last beyond the end of the first quarter."



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