Oil falls to near $80 ahead of Fed meeting
Oil prices fell to near $80 a barrel Tuesday as Chinese imports dropped, another sign that the world's third-largest economy is slowing, and investors looked to a Federal Reserve meeting for possible policy changes to boost U.S. growth.
By early afternoon in Europe, benchmark crude for September delivery was down $1.13 to $80.35 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 78 cents to settle at $81.48 on Monday.
Stock markets were down in Asia and most of Europe after the Chinese trade figures, which showed a monthly decline of oil imports in July of 17.5 percent.
"Crude prices above $80 per barrel act to lower buying interest from Chinese refiners, who witness a drop in state-guaranteed margins beyond this threshold," said a report from JBC Energy in Vienna. "The latest decrease in imports also stems from lower refinery demand due to maintenance. Oil demand from the Middle Kingdom is likely entering a cool-down phase."
Other experts were less pessimistic, suggesting statistical anomalies and short-term issues were behind the drop in Chinese oil imports.
"Worries regarding a lasting weakening of demand seem to be premature," said analysts at Commerzbank in Frankfurt. "The distinct decline of imports compared to June can be explained, on the one hand, with the record imports in the previous month. In addition, there was a pipeline explosion in the port of Dalian in the middle of July which temporarily affected imports."
Oil jumped out of the $70s to a three-month high last week and has held above $80 despite a weak U.S. July employment report released Friday. Traders are speculating the Fed may announce later Tuesday new stimulus measures to keep the economy from slipping back into recession.
"At this stage, we cannot imagine any set of numbers that this market will not interpret bullishly," Cameron Hanover said in a report. "Bullish numbers are bullish and bearish numbers will force the Fed to do something bullish."
Traders have shrugged off rising U.S. crude inventories as low interest rates encourage higher-risk investments. Based only on supply and demand, oil should be trading between $20 and $30, Cameron Hanover said.
"The best-heeled and biggest players can borrow money without any cost," Cameron Hanover said. "They have been borrowing that money and plowing it into commodities."
The American Petroleum Institute (API) will issue its weekly oil inventory report later Tuesday and the Energy Department's Energy Information Administration its own -- the market benchkmark -- on Wednesday.
Crude oil stocks are forecast to fall by 2.4 million barrels, while gasoline supplies are expected to drop by 1.5 million barrels, according to analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos.
In other Nymex trading in September contracts, heating oil fell 3.05 cents to $2.1233 a gallon, gasoline dropped 2.34 cents to $2.0953 a gallon and natural gas slid 1 cent to $4.299 per 1,000 cubic feet.
In London, Brent crude was down $1.30 to $79.69 a barrel on the ICE Futures exchange.