London: Oil climbed to a 26-month high yesterday before easing slightly as uncertainty about Chinese fuel demand following a surprise interest rate rise countered the bullish impact of a blizzard in the US Northeast.
US crude for February was trading 24 cents lower at $91.26 (Dh335) a barrel by 10.53am GMT, after hitting an intraday high of $91.88 — the highest since October 2008. ICE Brent crude gained 3 cents to $93.80.
Oil prices have climbed 35 per cent since this year's low in May, driven by the combination of a weakened US dollar and then unusually cold weather in Europe and the United States that boosted heating fuel demand and slashed inventories.
The rise in the price of oil and other commodities has raised concerns of inflation in major fuel-importing countries.
As it strives to prevent its economy overheating, China, the world's second-biggest oil burner after the United States, on Saturday raised interest rates for the second time in just over two months. Markets had expected the rates rise, but the timing was a surprise.
Impact
When China last raised interest rates in mid-October, oil fell 4 per cent, although the market soon recovered.
Analysts said this time the immediate impact was difficult to judge because trade is very thin over the year-end holiday period, but in general a slower Chinese economy implied reduced oil consumption.
"What it does show is that China is serious when it says 2011 is going to be the year of prudent fiscal policy," said Olivier Jakob of Petromatrix.
"Further Chinese interest rate hikes will now be expected for 2011."
Longer term and especially for other commodities with more fundamental strength than oil, analysts predicted a raw materials rally had further to run.
"This certainly doesn't spell the end of the commodities boom or the strong China story. It's a smart move that may have caught the market off guard," said Mark Pervan, senior commodities analyst at ANZ.
Commodities began to rise around September, coinciding with a wider financial markets rally, following US quantitative easing that weakened the dollar.
A weaker dollar stokes buying in dollar-denominated commodities, made relatively cheap for holders of other currencies.
In December the rally has also drawn strength from strong heating oil demand because of unusually cold weather in the northern hemisphere.
The first widespread blizzard of the season slammed into the northeastern United States, the world's top heating oil market, on Sunday.
Any increase in demand and a subsequent drop in inventories could eventually persuade Opec to act, but at a conference in Quito earlier in December, Opec left existing output targets unchanged.
