China's new monetary policy drags oil down

China's booming economy is at the centre of global commodity demand growth. (SUPPLIED)

Oil slipped to near $74 yesterday after stronger-than-expected Japanese growth data was overshadowed by concerns rising energy demand could be curbed by China's moves to tighten monetary policy.

Crude fell for the first time in four days on Friday, shedding around 1.5 per cent after China's central bank increased the percentage of cash banks must keep as reserves for the second time this year.

China's booming economy is at the centre of global commodity demand growth.

US crude for March delivery had fallen by 13 cents to $74.00 a barrel. London ICE Brent for April delivery declined 20 cents to $72.70. "When you look at prices, I don't see much more downside," said Mark Pervan, senior commodities analyst at ANZ in Melbourne.

"China, Japan, Korea, Taiwan and other Asian economies are going to perform well this year notwithstanding what the Chinese Government is doing to control growth."

Oil has traded in a relatively tight $15 range between $69 and $84 a barrel since the beginning of October. At the peak of the financial crisis, oil crashed below $40 a barrel from a July 2008 record of almost $150, but expectations of an economic recovery have supported prices since then.

Japan's economy grew faster than expected in the fourth quarter with government stimulus programmes spurring expansion of 1.1 per cent. However, Japan's demand for oil has been falling in recent months, as consumers and industry continue to shift to other forms of energy.

Algerian Energy and Mines Minister Chakib Khelil on Sunday said all options are open at the March meeting of the Organisation of the Petroleum Exporting Countries (Opec).

The producer group, whose 12 members pump more than a third of the world's oil, meet in Vienna on March 17 to decide whether to change production targets.

In late 2008, Opec cut output targets by 4.2 million barrels per day, or about five per cent of world demand, in a bid to support prices during the downturn.

Holidays around the world are set to curb liquidity in oil markets.

China's markets are closed this week for the Lunar New Year holiday, as are markets in South Korea, Taiwan, Hong Kong, Vietnam, Malaysia and Singapore.

In the United States, markets are closed for Presidents' Day.

European markets are still open, and it is action there on debt-laden Greece that could set the tone for the euro and US dollar.

The euro was near nine-month lows against the dollar yesterday as doubts intensified about whether policy makers in the euro zone will help Greece, prompting investors to add to long positions in the greenback.

Euro-zone finance ministers, scheduled to meet today, are expected to call on Greece to fully implement planned budget deficit cuts so that the euro area would never have to deliver on its pledge last week of support for Athens.

 

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