Crude oil tumbled the most in eight months after China raised benchmark interest rates, potentially crimping demand in the world’s biggest energy-using country, and the dollar rose against the euro.
Futures dropped 4.3 percent on the first increase in China’s key lending and deposit rates since 2007 following an acceleration in inflation to the fastest pace in 22 months. The dollar advanced versus the European currency on speculation the Chinese move will reduce economic growth. A rising greenback curbs investor demand for raw materials.
“The surprise Chinese rate hike has sent the dollar higher and that’s pushing oil lower,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “It’s a double whammy, this could cause weaker demand along with strengthening the dollar.”
Crude oil for November delivery fell $3.59 to settle at $79.49 a barrel on the New York Mercantile Exchange, the biggest drop since Feb. 4. The November contract expires tomorrow. More-actively traded December futures slipped $3.64, or 4.3 percent, to end the session at $80.16.
Prices declined from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles increased 2.32 million barrels to 364.8 million. November oil was down $3.62, or 4.4 percent, to $79.46 a barrel in electronic trading at 4:35 p.m.
Gasoline for November delivery tumbled 10.32 cents, or 4.8 percent, to $2.0483 a gallon on the Nymex. It was the biggest one-day decline since July 8, 2009. November heating oil fell 8.68 cents, or 3.8 percent, to $2.1893 a gallon.
A report on Oct. 21 may show that China’s inflation quickened to 3.6 percent in September, highlighting overheating risks that have prompted the government to curb credit.
“Tightening of Chinese monetary policy is weighing on crude oil and the entire commodity space,” said Jason Schenker, the president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “Increased lending rates and deposit requirements will reduce available liquidity in the market and could engender slower growth, adversely affecting demand.”
The Thomson Reuters/Jefferies CRB Index of 19 commodities dropped 1.9 percent to 292.98. Fourteen of the commodities declined and five gained.
The Chinese announcement helped send equities lower. Stocks also declined amid concern that banks will be forced to buy back soured mortgages. The Standard & Poor’s 500 Index slipped 1.8 percent to 1,163.97 at 3:50 p.m. in New York, and the Dow Jones Industrial Average decreased 1.7 percent to 10,956.86.
The U.S. currency rose for a third day, surging 1.5 percent against the euro to $1.3722. The dollar is heading for the biggest gain since Aug. 11.
“The dollar is rocketing higher at the moment,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. “That is also putting a lot of pressure on the market.”
An Energy Department report tomorrow will probably show that U.S. crude-oil stockpiles climbed 1.5 million barrels last week, according to the median of 15 analyst estimates in a Bloomberg News survey. That would leave supplies at the highest level since the week ended June 25.
In France, unions have stepped up pressure on President Nicolas Sarkozy to retreat from a plan to raise the retirement age to 62 from 60. Truckers blocked highways and police were deployed to prevent strikers from stopping fuel deliveries.
“The U.S. is oversupplied for the moment,” said Eugen Weinberg, head of commodity research at Commerzbank AG in Frankfurt. “I don’t think the effects of the French strikes are positive for the market. It might lead to lower demand because these refineries are not asking for crude.”
Total SA, Europe’s biggest refiner, said about 1,000 of the 4,000 service stations it operates in France are facing shortages of one or more fuel products because of the strike.
Christine de Champeaux, a spokeswoman, said by telephone that protesters also demonstrated in front of at least three fuel depots today.
Brent crude oil for December settlement declined $3.27, or 3.9 percent, to end the session at $81.10 a barrel on the London-based ICE Futures Europe exchange. It was the biggest drop since June 4.
Oil is likely to trade in the low-to mid-$80 range next year, Daniel Yergin, chairman of IHS-Cambridge Energy Research Associates, said today at a conference in Naples, Florida. One of the biggest influences on prices in the near term may be currency movements, said Yergin, who was speaking at the Global Financial Leadership Conference, presented by the CME Group.
Oil volume on the Nymex was 784,724 contracts as of 3:40 p.m. in New York. Volume totaled 677,631 contracts yesterday, 1.2 percent below the average of the past three months. Open interest was 1.45 million contracts.