Oil falls below $79 on concerns over US economy

Oil falls below $79 on concerns over US economy

Singapore: Oil fell below $79 a barrel on Friday and was set for its first weekly drop in more than a month, as disappointing economic data added to expectations for reduced heating demand in the United States.

US retail sales declined in December for the first time in three months, the Commerce Department said on Thursday, while Labour Department data showed more people sought jobless benefits last week.

Prices edged up briefly a day earlier after US regulators announced proposals to put a hard cap on the size of positions dealers can hold, aiming to limit speculation, as traders considered it not as stringent as feared. The market was also seeking more details on the rules before making further moves.

US crude oil futures for February delivery fell 44 cents to $78.95 a barrel at 9:12am. Prices have shed about $5 from a 15-month intraday high of $83.95 on Monday, having touched a 2010 low of $78.37 two days ago.

The new front-month March contract for London Brent crude slid 53 cents to $78.04.

“The fundamentals are weak," said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd. “US economic data is not really improving much and this may push down NYMEX prices to below $78."

The long-awaited proposals from the US Commodity Futures Trading Commission (CFTC) will apply to the four most-traded energy contracts on the two major exchanges, NYMEX and ICE.

It remains to be seen if the limits - which the CFTC said would affect only the 10 biggest position holders if implemented immediately -- are enough to satisfy Congress members who have clamoured for regulatory action since oil prices jumped to a record above $147 in July 2008.

Emori said it was too early to say whether the new regulation will affect the market or prices. “We probably need some more details on how they will regulate each category of participants," he said. “It is quite difficult for them to distinguish which part of a bank’s trading activity is hedging or speculation."

Crude and fuel inventories at top consuming nation the United States rose last week despite unusually cold weather. Temperatures are now forecast to exceed the seasonal norm, suppressing consumption.

US demand for distillates, a fuel category which includes heating oil, was 4 percent below year-earlier levels in the four weeks ended Jan. 8, a government report showed on Wednesday.

“Stockpiles are rising and demand is lower than expected," Emori said.

US economic activity is now at a low level but is showing signs of modest improvement, the Federal Reserve said on Wednesday in remarks seen as reinforcing the prevailing view that oil demand will grow in 2010.

But recent downbeat data and the view that US interest rates will remain low for a while sent the dollar to a one-month low against sterling. The US dollar also took a hit versus currencies leveraged to global growth such as the Australian and Canadian dollars on positive earnings from tech-bellweather Intel Corp.