LONDON: Oil fell towards $81 a barrel on Tuesday from a 15-month high as forecasts for milder weather in the US Northeast signaled lower demand in the world s largest heating oil market.
The market also slipped as China raised banks reserve requirements in a move to head off increasing inflation pressures. This weighed on equities and other commodities such as gold, while the dollar rose.
US Northeast temperatures in the next six to 10 days will be near to above normal, said DTN Meteorlogix. The National Weather Service on Monday forecast heating oil demand would ease to normal levels this week.
US crude for February delivery fell $1.18 to $81.34 a barrel at 1212 GMT, after hitting $83.95 on Monday, the highest intraday level since October 2008. Brent crude lost $1.14 to $79.83.
I think the cold weather was just a psychological argument to buy crude oil because supply is ample, said Carsten Fritsch, analyst at Commerzbank.
Following Monday s high, it s time for the financial investors to take profits, he said. The prospect of milder temperatures may be another argument to take profit now.
While oil inventories are brimming due to a year of falling global demand and ample supply, weekly US data due on Tuesday and Wednesday is expected to show the icy weather has eroded stockpiles of distillates.
US distillates inventories were forecast to have fallen 1.7 million barrels, a Reuters poll showed, their fifth-straight weekly drop. Crude inventories probably rose 1.0 million barrels.
Tuesday also sees the release of the US government s monthly supply and demand forecast.
The report will say that US and global oil demand will increase in 2010 and 2011, but not as fast as in previous years, according to advance details provided to Reuters.
Oil has risen from just below $75 on Dec. 22 when the Organization of the Petroleum Exporting Countries decided to leave its output policy unchanged. It meets next in March, and so far ministers are happy with the market.
The oil price is fantastic and oil demand is rising, Kuwait s oil minister Sheikh Ahmad al-Abdullah al-Sabah told reporters. Next meeting will be the same… no change of course, he said. -Additional reporting by Alejandro Barbajosa in Singapore.