|Published:||Feb 08, 2011 9:58 PM EST|
|Updated:||Feb 08, 2011 6:58 PM EST|
Oil prices fell on Tuesday after China increased key interest rates to help slow inflation in its growing economy. That raised concerns that the country's thirst for oil would diminish as well.
West Texas Intermediate crude, or WTI, for March delivery lost 54 cents to settle at $86.88 a barrel on the New York Mercantile Exchange. In London, Brent crude rose 65 cents to settle at $100.52 per barrel on the ICE Futures exchange.
Investors appeared to be more concerned about China than the ongoing anti-government demonstrations and strikes in Egypt. About 3,000 support workers at the Suez Canal demonstrated for better wages and working conditions, but operations at the canal continued uninterrupted.
China's central bank raised interest rates for the third time since October to rein in inflation. The country's inflation rate hit a 28-month high of 5.1 percent in November before moderating in December. Government leaders fear a sharp rise in prices for things like food and fuel could trigger unrest.
China is the second-largest energy consumer in the world, after the U.S. China's so-called "apparent oil demand" jumped 11.43 percent to a record 434.4 million metric tons in 2010 from the previous year, according to Platts, the energy information arm of McGraw-Hill Cos.
The figure is based on refinery and net oil product import data as reported by the National Bureau of Statistics and Chinese customs, Platts said. The Chinese government doesn't release actual oil consumption data.
China imports 5.5 million barrels of oil a day and uses about 10 million barrels a day, according to Michael Lynch, president of Strategic Energy & Economic Research.
Although many oil traders expected the interest rate hike, the concern is how much it might eventually reduce China's oil demand. "That was one of the main pillars of the current (oil) price," Lynch said.
Investors also are concerned about growing U.S. oil supplies while demand for oil and gas is still mediocre in the recovering economy. The government is expected to release its latest oil inventory report on Wednesday. Analysts surveyed by Platts expect crude supplies increased by 2.4 million barrels last week from the week before.
Lynch said demand for gasoline will probably stay weak, if prices remain around a national average of $3 a gallon. "Given that we have more than adequate inventories, it seems highly unlikely that we're going to see much tightness, I think, in the gasoline market."
Pump prices have risen along with oil prices since mid-November, when crude was around $80 a barrel.
The national average for regular gasoline was $3.117 a gallon on Tuesday, according to AAA, Wright Express and the Oil Price Information Service. That's 2.9 cents more than it was a month ago and 46.5 cents more than a year ago.
In other Nymex trading in March contracts, heating oil rose 2.57 cents to settle at $2.7318 a gallon and gasoline gained 4.37 cents to settle at $2.4942 a gallon. Natural gas fell 6.4 cents to settle at $4.040 per 1,000 cubic feet.
(Copyright 2011 by The Associated Press. All Rights Reserved.)