Futures fell as much as 0.8 percent as Chinese equities declined on speculation the government will raise interest rates to cool economic growth. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slid for a third day. Crude also dropped as a strengthening dollar limited the appeal of commodities.
“China wants to subdue the fever in the equity markets to avoid inflation,” said Ken Hasegawa, a commodity derivative sales manager at broker Newedge in Tokyo. “Oil will move at the same time as the equity markets. Oil is at a stage to take some profits.”
January futures fell as much as 68 cents to $85.05 a barrel in electronic trading on the New York Mercantile Exchange. The contract was at $85.42 at 3:01 p.m. Singapore time. Prices are up 4.9 percent this month and 7.6 percent this year.
Crude, which is headed for a third monthly gain, climbed 2.4 percent yesterday to $85.73, the highest settlement since Nov. 11, after a report showed U.S. shoppers increased purchases ahead of the Christmas holiday, raising expectations of climbing fuel demand as the economy improves.
Prices dropped today as the dollar traded near its highest in two months against the euro on concern Ireland’s banking crisis will spread to Spain and Portugal. A rising U.S. currency damps investor demand for commodities.
China’s Economy
China, which has overtaken the U.S. as the world’s biggest energy user, needs to raise interest rates for the second time this year to curb inflation, Zhong Jiyin, an economist with the Chinese Academy of Social Sciences, wrote in a commentary in the China Daily today.
“China wants to make the markets calm,” said Newedge’s Hasegawa. “They are very clever and I think we’ll see the economy keep growing for the next two to three years.”
Crude prices may rise as declining temperatures in the U.S. boost heating demand and reduce stockpiles, Hasegawa said.
Supplies of distillates, which include heating oil and diesel, probably fell for a 10th time last week as demand increased, a Bloomberg News survey showed. Stockpiles dropped 1.1 million barrels in the seven days ended Nov. 26, according to the median of 11 analyst estimates before an Energy Department report tomorrow.
Crude Stockpiles
Crude oil supplies probably decreased 900,000 barrels from 358.6 million, the analysts said. Gasoline inventories probably climbed 750,000 barrels, the survey showed.
Hedge funds and other speculators reduced their bets on rising oil prices, according to government data released yesterday.
Net-long positions in crude oil dropped by 38,654 futures and options combined, or 22 percent, to 139,743 the week ended Nov. 23, said the Commodity Futures Trading Commission’s weekly Commitments of Traders report.
Brent crude for January settlement fell as much as 69 cents, or 0.8 percent, to $86.65 a barrel on the ICE Futures Europe exchange in London. The contract rose $1.76, or 2.1 percent, to $87.34 a barrel yesterday.
