Oil dips towards $86; China imports slump

Oil dips towards $86; China imports slump

Singapore: Oil fell for a second day on Wednesday after China’s crude imports tumbled last month and the dollar strengthened, suppressing the bullish effect of an unexpected drop in inventories in top consumer the United States.

US crude for December declined as much as 0.6% to $86.17 and was down 28 cents at $86.44 a barrel by 10:15 am, after reaching $87.63 on Tuesday, its highest since October 2008. ICE Brent fell 31 cents to $88.02.

China’s crude imports fell 30% in October to 16.39 million tonnes, the lowest monthly average in 18 months, or 3.86 million barrels per day (bpd), from a record 5.67 million per day in September, customs data showed on Wednesday.

The dollar gained almost 0.5% against a basket of currencies, blunting the appeal of commodities as an investment and offsetting a drop of 7.4 million barrels in US crude stockpiles last week, as reported by the American Petroleum Institute (API) late on Tuesday.

“With China coming off, combined with a stronger dollar, we should have a downward correction," said Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp. “The market went up too much over the past couple of weeks."

Still, Nunan and other investors and analysts warned against reading too much into a single set of Chinese trade data.

The average of Chinese crude imports for September and October, at 19.84 million tonnes, is roughly in line with totals seen for the first eight months of the year at 19.73 million, suggesting re-stocking took place in the month before October’s week-long National Day celebrations.

“There just seems to be so much volatility in those numbers," Nunan said. “I’m still bullish on China. You have to take a long-term view. We are now solidly in the $80s."

Global oil supplies will come close to a peak by 2035 when prices will top $200 a barrel, the International Energy Agency said in its 2010 World Energy Outlook (WEO), as China and other emerging economies drive demand higher.

Conventional crude oil output has already peaked and would flatten out in the next 10 years, the IEA said on Tuesday, boosting reliance on costlier and more polluting unconventional sources such as oil sands.

Tuesday’s API industry report pointed to tightening fuel supplies in the United States. Stockpiles of distillates, including heating oil and diesel, dropped by 4 million barrels in the week to 5 November, while gasoline inventories slipped 3.4 million barrels.

Markets await confirmation of this declining trend across fuel categories from the US Energy Information Administration, set to release government data on inventories and demand on Wednesday at 09:00 am.

“If you have some confidence that the worst is over in terms of inventories, it’s pretty important for price," Nunan said.

“If things get really in sync between China and the U.S., the biggest engine of growth and the biggest slice of the pie, then we can go another $5 higher."