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Oil edges lower despite strong demand

OIL prices fell yesterday despite signs of strong Chinese demand for crude, and amid a weakening dollar and strong flow of speculative funds into commodities.

Benchmark crude for February delivery fell 23 cents to settle at US$82.52 a barrel on the New York Mercantile Exchange, after rising as high as US$83.95 earlier in the day.

Prices have been jumping on the back of a strong oil market where the cost for a barrel has spiked 20 percent in the past month on the Nymex. Oil prices are now about three times what they were a year ago.

A weaker dollar has helped boost oil prices, as investors buy commodities as a hedge against inflation while crude priced in dollars becomes cheaper in other currencies.

China said Sunday that oil imports rose 14 percent last year to a record high in December, part of a 56 percent surge in overall imports last month. The better-than-expected Chinese figures early yesterday helped investors brush off Friday's disappointing U.S. jobless report, which showed the economy lost 85,000 jobs in December and the unemployment rate was steady at 10 percent.

Unusually cold winter weather in parts of the U.S., Europe and Asia also boosted demand for oil products such as heating oil.

Amplifying the effects of the frigid climate was a surge into commodities of speculative money with little regard for the basics of supply and demand.

Analysts at Britain's KBC Market Services said that rising oil prices were the result of speculative decisions, not market fundamentals.

"If prices continue to rise next week, it will be tempting to conclude that we are back in the casino-like oil market conditions we saw in 2008," KBC said in a report. Oil hit a record high of US$147 a barrel in July 2008.

In other Nymex trading in February contracts, heating oil fell 2.02 cents to settle at US$2.1801 a gallon while gasoline fell 1.26 cents to settle at US$2.1427 a gallon. Natural gas futures fell 29.5 cents to settle at US$5.454 per 1,000 cubic feet.

In London, Brent crude for February delivery fell 40 cents to settle at US$80.97 a barrel on the ICE Futures exchange.


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