Crude futures are down Wednesday on concerns of a tightening in China's monetary policy, which renewed worries about a potential slowdown in commodity demand.
Crude futures are down Wednesday on concerns of a tightening in China 's monetary policy, which renewed worries about a potential slowdown in commodity demand.

Light, sweet crude for February delivery recently traded $1.53, or 1.9%, lower at $77.49 a barrel on the New York Mercantile Exchange. The February contract expires today. Brent crude on the ICE futures exchange traded $1.40, or 1.8%, lower at $76.23 a barrel.

China was reported to have asked banks to suspend lending for the rest of January, which weighed on global equity markets and helped push the dollar higher, as investors fled riskier assets and looked to safe-haven investments.

China 's Banking Regulatory Commission Chairman said while it hasn't told banks to suspend lending in January it will control the pace of credit growth this year, leading to a substantial drop in new yuan lending.

Last week China appeared to take steps to drain excess liquidity from its markets for fears that its economy is overheating, with its Central Bank raising a key reserve requirement rate.

The surge in Chinese oil demand in recent years was one of the factors that drove oil prices to their peak of $147 a barrel in the summer of 2008. So there are concerns that any slowdown in the Chinese economy could also restrain the country's oil demand.

" China is putting pressure on commodities in general and oil specifically," said Peter Beutel, president of energy-trading advisory firm Cameron Hanover in Connecicut.

He added that "a stronger dollar and moderate temperatures are also putting pressure on oil."

Oil typically falls on a stronger dollar as this makes the commodity more expensive to other currency holders. However, this inverse relationship has lessened in recent months, with oil climbing on Tuesday despite dollar strength, instead focusing on stronger equities.

Expectations for a further build in U.S. oil stocks were also said to be weighing on oil prices. Weekly inventory reports so far this year have shown a consistent rise in oil supplies in the face of persistently weak domestic consumption.

Analysts surveyed by Dow Jones anticipate crude inventories rose 1.9 million barrels, distillate stocks increased 1.1 million barrels while distillate stocks, that include diesel and heating oil, are set to show no change.

After a pick-up in refining rates last week, analysts are now expecting a fall in processing levels of 0.5 percentage point to 80.8% of total capacity.

The American Petroleum Institute data is due out later Wednesday while the U.S. Energy Information Administration will release its report on Thursday. Both sets of data are released a day late due to Monday's Martin Luther King holiday.

Front-month February reformulated gasoline blendstock, or RBOB, recently traded 2.42 cents, or 1.2%, lower at $2.0349 a gallon. February heating oil recently traded 3.13 cents, or 1.5%, lower at $2.0141 a gallon.

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