Oil rises above $80, China rate hike impact wanes

LONDON - Oil rose above $80 a barrel on Wednesday, supported by a weaker dollar, signs that U.S. fuel stockpiles are falling and as investors reassessed a surprise interest rate rise in the world’s second-largest consumer China.

By (Reuters)

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Published: Wed 20 Oct 2010, 5:30 PM

Last updated: Mon 6 Apr 2015, 11:43 AM

Fuel stockpiles in the United States fell last week, the American Petroleum Institute (API) said on Tuesday. The U.S. government’s Energy Information Administration reports its inventory figures on Wednesday.

U.S. crude for November, which expires later on Wednesday, gained 91 cents to $80.40 a barrel by 1104 GMT. Brent crude rose by $1.07 to $82.17.

Oil in New York on Tuesday fell more than 4 percent, the biggest one-day percentage decline since February, after China surprised markets by raising interest rates for the first time in nearly three years.

“This will not derail the Chinese economy, so the reaction was a bit overdone,” said Carsten Fritsch, commodities analyst at Commerzbank in Frankfurt. “Commodity prices and also equity markets have rebounded today.”

European stocks were higher and other commodities such as gold and copper also gained. The rate rise prompted losses across commodities, sending down the Reuters-Jefferies CRB index by almost 2 percent on Tuesday.

“The actual impact of this rate hike might be limited on the overall growth story in China. I don’t think fundamentally it changes the demand story,” said Yingxi Yu, a Singapore-based commodities analyst with Barclays Capital.

Weak dollar

Oil also gained support from a weak dollar, which dipped against a basket of currencies. A falling dollar makes oil and other dollar-denominated commodities cheaper for holders of other currencies.

U.S. crude reached a five-month high above $84 on Oct. 7 as expectations the Federal Reserve would this year embark on a second round of expansionary monetary measures to boost growth weighed on the dollar.

Several Federal Reserve officials indicated on Tuesday that the central bank will soon offer further monetary stimulus, with one saying $100 billion a month in bond buying may be appropriate..

China has been the main driver of oil demand growth so far this year, although it still uses far less than top consumer the United States. A source said China will raise retail fuel prices effective Thursday.

Even so, an inventory overhang in the United States has limited price gains. U.S. crude inventories rose by a greater-than-expected 2.3 million barrels last week, the API said on Tuesday.

But U.S. stocks of distillates, including diesel and heating oil, fell by 854,000 barrels, while gasoline stocks fell by 83,000 barrels. Refinery utilization rose 0.8 percentage points.

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