NEW YORK (Dow Jones)--Crude futures fell Tuesday after China's surprise move to raise interest rates sparked worries that the country's growing demand for raw materials could slow.
Light, sweet crude for November delivery recently traded $2, or 2.6%, lower at $81.08 a barrel on the New York Mercantile Exchange. The November contract expires Wednesday and trading was concentrated in the December contract, which fell $2.22 to $81.58.
Brent crude on the ICE futures exchange traded $2.07 lower at $8230 a barrel.
The People's Bank of China unexpectedly raised the one-year lending and deposit rates by 25 basis points each, effective Wednesday, a move that is likely to slow down China's rapid growth.
The rate hike spurred the dollar higher, which also weighed on crude as a strong dollar makes oil more expensive for buyers in other currencies.
"You are seeing the knee-jerk reaction to the China hike, along with the dollar," said Matt Zeman, Chief Market Strategist with LaSalle Futures. "Any steps China takes to slow their economy are going to slow the global recovery as well. It's going to have a far reaching ripple effect."
The ICE dollar index, which measures the dollar against a basket of currencies, was recently up 1.2%. The euro was recently down 0.8% to $1.3842.
Last week, oil markets cheered a report showing oil imports into China reached a record high of 5.67 million barrels a day in September. With U.S. weekly demand for oil and fuel products at the lowest level in nearly a year, traders and analysts have been hoping that international demand will help keep prices stable.
Crude has traded above $80 a barrel through October as a weakening dollar and the threat of widespread currency devaluation sent investors looking for hard assets, including commodities.
U.S. inventories of oil and fuel products have also retreated slightly from 27-year highs hit in September.
Weekly data from the U.S. Department of Energy due 10:30 a.m. EDT Wednesday, however, is expected to show a 2.4 million barrel build in crude stockpiles. Gasoline stockpiles are expected to fall by 1.3 million barrels, while inventories of distillates, which include heating oil and dielel, are seen falling by 900,000 barrels.
Meanwhile, strikes across France have disrupted production at all of the country's 11 operating refineries and one Swiss plant. French refineries account for nearly 12% of European refining capacity.
Industrial action at France's Fos-Lavera oil terminal, the world's third-largest port for oil imports, has kept dozens of ships from unloading.
Front-month November reformulated gasoline blendstock, or RBOB, recently traded 6.03 cents lower at $2.0912 a gallon. November heating oil recently traded 5.08 cents lower at $2.2253 a gallon.
-By Jerry A. DiColo, Dow Jones Newswires; 212-416-2155; jerry.dicolo@dowjones.com.
