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New York: Oil prices dropped yesterday after China said it will raise fuel prices, a move that could dampen the booming Asian nation's oil consumption.
Light, sweet crude for July delivery fell $2.82 to $133.86 a barrel on the New York Mercantile Exchange, but dipped more than $3 at times. In London, August Brent crude futures fell $2.75 to $133.67 a barrel on the ICE Futures Exchange.
China disclosed that it will raise the prices of gasoline, diesel, aviation kerosene and electricity.
Growing Chinese demand for oil has underpinned the multiyear rally in oil prices, but higher prices could crimp that demand. Concerns about spiking Chinese demand for diesel due to cleanup operations in the aftermath of last month's earthquake contributed to oil's recent run-up.
"This could change the psychology of the market completely," said James Cordier, president of Tampa, Florida-based trading firms Liberty Trading Group and OptionSellers.com.
Lower demand in China "would be a major factor in driving prices down" in the rest of the world, said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.
Also pressuring prices yesterday were the dollar's gains against the euro. Investors who buy commodities such as oil as a hedge against inflation when the dollar falls tend to sell when the greenback gains ground. Also, a stronger dollar makes oil more expensive to overseas investors.
Energy investors are also awaiting a summit opening Sunday in Saudi Arabia between oil consuming and producing nations to address high prices.
Meanwhile, Iraq's Oil Ministry said yesterday that the nation is close to signing oil service deals with several major Western oil companies in an effort to boost its output capacity. The agreements would be the first major Iraqi contracts with big Western companies since the 2003 U.S.-led invasion.
Price declines were limited yesterday by news of an attack on a Royal Dutch Shell oil field in Nigeria that produces about 200,000 barrels of crude per day.
In other Nymex trading yesterday, July natural gas futures fell 29.2 cents to $12.918 per 1,000 cubic feet. The Energy Department said natural gas inventories rose by 57 billion cubic feet last week, toward the lower end of the range of analyst estimates.
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