Oil hovers above $85 as traders eye China economy

LONDON – Oil prices edged above $85 a barrel Monday, stabilizing after a big fall last week, as investors considered what steps China may take to ease inflation pressures.

Benchmark oil for December delivery was up 68 cents at $85.56 a barrel by midday in Europe in electronic trading on the New York Mercantile Exchange.

The contract fell $2.93, or 3.3 percent, to settle at $84.88 on Friday after China said inflation quickened to 4.4 percent in October. Traders are concerned policymakers may take additional measures to slow Chinese economic growth, which would undermine demand for crude.

“Investors were forced to face a potential increase in Chinese interest rates or other steps designed to cool the overheating engine of Chinese growth,” Cameron Hanover said in a report. “Of course, that’s the only engine that is firing on all cylinders right now.”

A rally in prices to above $88, fueled by U.S. Federal Reserve bond purchases and a weakening dollar, stalled last week as the U.S. currency rebounded and investors feared that global economic growth could disappoint.

Christof Ruhl, the chief economist at BP PLC, expects oil prices to hover around $80 a barrel in 2011. He said there might be “a little upward shift if the economy continues to grow,” though the sustainability of China’s economic growth was a key risk.

Meanwhile, worries about Europe’s debt crisis – with Ireland pressed by other European countries to accept a bailout to shore up confidence in the euro – weighed somewhat on sentiment and the growth outlook.

In other Nymex trading in December contracts, heating oil rose 2.2 cents to $2.38 a gallon and gasoline gained 2.3 cents to $2.23 a gallon. Natural gas rose 1.1 cents to $3.79 per 1,000 cubic feet.

In London, Brent crude rose 1.0 percent to $87.25 a barrel on the ICE Futures exchange.

Alex Kennedy in Singapore and Silvia Hui in London contributed to this report.

A service of YellowBrix, Inc.

 

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