Oil drops towards $74 on China banks; eyes inventories

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LONDON: Oil fell towards $74 a barrel on Tuesday after China implemented a clampdown on lending, rekindling concern that tightening moves by the world s second-largest oil user may limit demand.

Crude approached a one-month low after the Chinese move, which analysts said was a setback for the bullish view in oil markets that puts the prospect of rising Asian demand ahead of the market s weak current fundamentals.

The fundamental link to current prices is weak – hence oil prices need at least some general optimism that boom times are around the corner, said Olivier Jakob, analyst at Petromatrix.

That general optimism depends a lot on China s consumption, saving the rest of the world and that will be somewhat challenged by the Chinese government trying to regulate the formation of bubbles.

US oil was down 79 cents at $74.47 by 1002 GMT, having traded as low as $74.14. On Friday, it touched a one-month intraday low of $74.01. Brent crude lost 65 cents to $73.04.

China implemented its planned increase in required reserves for some banks on Tuesday, sources told Reuters. Asian stocks fell, copper slipped and the dollar gained. European shares lost ground.

Highlighting fears that a global recovery may be sputtering, South Korea reported weaker-than-expected growth in the fourth quarter and Britain came out of recession in the fourth quarter, but with a lower growth rate than expected. Standard & Poor s cut its rating outlook on Japan.

Economic reports this week have also raised doubts over the strength of the US recovery. The Federal Reserve is not seen indicating that it will raise its benchmark rate any time soon when it meets this week.

The Federal Open Market Committee (FOMC), the Fed s policy-setting group, begins a two-day policy meeting on Tuesday.

Oil inventories in the United States, the top oil consumer, are expected to rise further in reports due this week. Crude stocks probably rose by 1.7 million barrels, a Reuters poll of analysts showed on Monday.

The survey also forecasts gasoline stockpiles probably climbed 1.4 million barrels and distillates, which include heating oil and diesel, were predicted to have fallen 1.4 million barrels.

Industry group American Petroleum Institute issues its weekly inventory report on Tuesday at 2130 GMT. The government s Energy Information Administration (EIA) follows on Wednesday. -Additional reporting by Alejandro Barbajosa in Singapore

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By Reuters
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