Oil extended losses towards $78 a barrel yesterday on tighter credit policy in China, a stronger dollar and expectations that US refiners processed less crude.
US crude for February delivery fell more than one per cent to $78.15 a barrel by 0905GMT on its last day as the front-month NYMEX contract. March crude fell 75 cents to $78.57.
London Brent for March fell 70 cents to $76.93.
Chinese banking authorities have instructed some major banks to stop new lending for the rest of January after loan growth surged in the first few weeks of the year, said official media and banking sources.
"I expect China to continue to tighten its monetary policy over the next six months," said Clarence Chu, an energy trader at Hudson Capital Energy in Singapore.
"People expect less cash to be flowing around, so today's [Wednesday] news would also have a bearish impact on the market in the short run."
Separately, US crude inventories likely rose for a third straight week as imports increased and refinery utilisation fell with the start of the maintenance season, a preliminary Reuters poll of analysts showed.
A stronger dollar also weighed on crude. The euro fell to its lowest level in five months against the dollar and sterling yesterday on concern about Greece's fiscal problems.
On Tuesday, prices hit their lowest this year at $76.76 for front-month US crude futures before rising to above $79. They touched a 15-month high near $84 on January 11.
US inventory reports this week are due out a day later than usual because of Monday's Martin Luther King Jr. holiday. The American Petroleum Institute was expected to issue its industry report later yesteday.
US crude stockpiles were expected to have gained 2.5 million barrels on average the week ended on January 15, a survey of eight industry analysts showed. Distillate stocks were projected up 400,000 barrels, with heating oil demand expected to have fallen amid moderating winter temperatures in the US Northeast. Gasoline stocks probably rose 1.9 million barrels.
The country's refinery utilisation was forecast to have fallen 0.3 percentage point to 81 per cent of capacity.
Some US refineries have begun their first-quarter maintenance, with the goal of retooling for gasoline production ahead of the summer driving season.
China's move to limit credit could be interpreted as further tightening of Chinese monetary policy.
Higher reserve requirements for Chinese banks last week pulled commodity prices lower as traders saw the phasing out of economic stimulus measures.
Still, analsysts say Chinese industrial production probably grew at its fastest pace in almost four years, jumping by 20 per cent in the year to December compared to a reading of 19.2 per cent in November.
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