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Commodities: Oil falls 1.5% on China fears

Date: Monday 15 Feb 2010

Oil fell 1.5% to just above $74 per barrel on Friday as China’s surprise move to increase the reserve requirement for banks sparked fresh concern about the global economic recovery.

The news also sparked strong gains for the dollar, which put broad pressure on commodities.

Meanwhile a bigger than expected increase in US supplies of crude and gasoline also chipped away at demand for oil futures. The Energy Information Administration said crude inventories rose by 2.42m barrels in crude inventories in the week ended 5 February, more than expected. The EIA report, usually out Wednesday, was scheduled two days late following the closure of government offices due to heavy snow.

US light crude oil for March delivery fell $1.15 to settle at $74.13 a barrel on the New York Mercantile Exchange.

Also weighing on demand for oil was a decline in US consumer confidence. Data from the University of Michigan showed consumer sentiment fell to 73.7 at the start of February from 74.4 at the end of January, confounding expectations of a rise to 75.

Friday’s commodities sell-off also included gold futures. Gold for April delivery settled 41 cents lower at $1,090 an ounce at the New York Mercantile Exchange.

China took the market by surprise by announcing that banks will be need to set aside a further 0.5% of deposits as reserves from the 25 February in a bid to prevent the economy from overheating.

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