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Wed 17 Nov 2010 10:04 AM

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Oil trades near Nov lows on China demand concerns

China Premier Wen prepares steps to cool economy and tame price rises

Oil trades near Nov lows on China demand concerns
Oil

Oil
hovered near early-November lows on Wednesday as speculation mounted that China
will step up efforts to cool its economy, while a sharp drop in US crude
inventories prevented prices from sliding further.

US
crude for December advanced 6 cents to $82.40 a barrel at 0335 GMT, after
touching $82.03 on Tuesday, the lowest price since November 1, when the
front-month contract last traded below $82. Prices have tumbled seven percent
from a 25-month high of $88.63 in just four sessions.

ICE
Brent crude rose 1 cent to $84.74.

Chinese
Premier Wen Jiabao said his government is preparing steps to tame price rises,
adding his voice to official efforts to reassure consumers irked by a rapid
rise in the price of food and raising concern about potential monetary
tightening measures.

An
interest rate increase in China would curb oil consumption by the world's
largest energy user, the main driver for resurging demand in the aftermath of
the recession. Risk aversion because of Ireland's debt crisis is also prompting
investors to reverse bullish bets across commodities.

"World
growth has been put under question and markets are nervous," said David
Taylor, an analyst at CMC Markets in Sydney, adding that declines in US crude
inventories "may be stopping the price from sliding even further".

"The
market hasn't found support yet. It's the demand side and questions about the
U.S. dollar and China's capacity to consume energy going forward. In addition,
we have the latest story of the European sovereign debt crisis with Ireland.
These aren't small issues."

The
dollar edged down 0.1 percent against a basket of currencies on Wednesday.

Euro
zone ministers have agreed to send a joint European-International Monetary Fund
mission to Ireland that could prepare the way for a bailout to prevent its debt
crisis spreading to other countries

Asian
stocks fell and the euro wallowed at seven-week lows against the dollar on
Wednesday as Ireland's festering debt crisis led investors to play it safe and
take profits.

The
recent rise in the US dollar and speculation that China could tighten monetary
policy yet again to temper price pressures threatened to send commodities into
another sell-off.

But
US oil inventories provided a ray of hope for oil markets, with the American
Petroleum Institute reporting late on Tuesday that the nation's crude inventories
tumbled by more than seven million barrels for the second week in a row.

The
industry report showed crude stockpiles declined by 7.7 million barrels in the
week to Nov. 12, compared with analyst expectations for a 100,000-barrel build.

Distillate
stocks rose by 222,000 barrels, the API said, compared with analyst
expectations for a 2.2-million-barrel drop, while gasoline inventories fell 1.7
million barrels, much more than analyst expectations for an 800,000-barrel
fall.

Government
statistics on inventories will follow from the US Energy Information
Administration (EIA) on Wednesday.