Oil slides as China raises interest rates

By CHRIS KAHN

Story Tools

• order a reprint
• digg this
• save to del.icio.us

NEW YORK
The price of oil fell Tuesday after China said it will raise interest rates again to help control inflation.
Benchmark crude gave up 38 cents at $108.09 per barrel in morning trading on the New York Mercantile Exchange. In London, Brent crude rose 84 cents to $121.50 per barrel on the ICE Futures exchange.
Analysts are still concerned about uprisings in North Africa and the Middle East, which supplies about 27 percent of the world's oil. But higher interest rates could slow China's economy and shrink its appetite for oil. China, which trails only the U.S. in oil consumption, should still drive world oil demand this year, though it might not increase consumption as much as previously expected, analysts said. China has hiked interest rates four times since October.
"With higher interest rates, it's tougher to raise money," PFGBest analyst Phil Flynn said. "Businesses won't be able to hire as much. People will buy (fewer) cars and they'll drive less."
Analysts also say the arrival of an oil tanker in one of Libya's rebel-held ports could mean that oil may start flowing from the country sooner than expected. Before the rebellion, Libya exported about 1.5 million barrels of oil per day -- mostly to Europe. Those shipments have all but shut down.
It will probably be several months, even years, before Libya returns to the level of oil shipments it had before the uprising, experts said. Still, the arrival of a tanker was seen as a promising sign. Libya supplied less than 2 percent of world demand, but the losses have forced Saudi Arabia and other OPEC countries to make up for the shortage by boosting production at home. That will put further pressure on world supplies, especially if demand increases as expected later this year.
Meanwhile, gasoline pump prices jumped more than 2 cents on Tuesday to a new national average of $3.685 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular is 18.2 cents more expensive than a month ago and 85.7 cents higher than last year.
In other Nymex trading for May contracts, heating oil and gasoline futures both dipped by less than a penny to $3.1700 and $3.1691 per gallon, respectively. Natural gas lost a penny at $4.282 per 1,000 cubic feet.