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Fri 15 Jan 2010 02:51 PM

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Oil falls to $79 on concerns over US economy

Oil prices set for first weekly drop in over a month on disappointing economic data.

Oil fell to just above $79 a barrel on Friday and was set for its first weekly drop in more than a month on disappointing economic data and expectations for reduced heating demand in the US.

Retail sales declined in December for the first time in three months, the Commerce Department said on Thursday, while Labor Department data showed more people sought jobless benefits last week.

U.S. crude oil futures for February delivery slid 37 cents to $79.02 a barrel at 0728 GMT. Prices, which have fallen every day this week, have shed about $5 from a 15-month intraday high of $83.95 on Monday, and touched a 2010 low of $78.37 two days ago.

The new front-month March contract for London Brent crude slid 47 cents to $78.10.

"The fundamentals are weak," said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd. "U.S. economic data is not really improving much and this may push down NYMEX prices to below $78."

Prices edged up briefly a day earlier, after U.S. regulators announced proposals to cap the size of positions dealers can hold, aiming to limit speculation, but traders considered the step to be not as stringent as feared.

The long-awaited proposals from the U.S. Commodity Futures Trading Commission (CFTC) will apply to the four most-traded energy contracts on the two major exchanges, NYMEX and ICE.

It remains to be seen if the limits -- which the CFTC said would affect only the 10 biggest position holders if implemented immediately -- are enough to satisfy Congress members who have clamoured for regulatory action since oil prices jumped to a record above $147 in July 2008.

Emori said it was too early to say whether the new regulation would affect the market or prices.

"We probably need some more details on how they will regulate each category of participants," he said. "It is quite difficult for them to distinguish which part of a bank's trading activity is hedging or speculation."

Crude and fuel inventories in top consuming nation the United States rose last week despite unusually cold weather. Temperatures are now forecast to exceed the seasonal norm, suppressing consumption.

U.S. demand for distillates, a fuel category which includes heating oil, was 4 percent below year-earlier levels in the four weeks ended Jan. 8, a government report showed on Wednesday.

"Stockpiles are rising and demand is lower than expected," Emori said.

Markets awaited the release of further U.S. economic indicators later on Friday, including industrial production. (Reuters)

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