Oil prices fell in Asian trading Wednesday as the plunge in Chinese stocks the previous day sent ripples through Asian markets and raised expectations for reduced demand from the world's second-largest oil consumer.
Light, sweet crude for April delivery dropped US$1.13 to US$60.33 a barrel in electronic trading on the New York Mercantile Exchange midmorning in Singapore. A day earlier, the contract rose 7 cents to settle at a 2-month high of US$61.46 a barrel.
"The reaction to the fall in the Chinese stock market is really a short-term overreaction," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "The Chinese economy will remain a major growth engine in the global economy. Perhaps what's more important is the health of the U.S. economy."
Chinese stocks dropped nearly 9 percent on Tuesday on speculation that China's government may take steps to slow its rapidly expanding growth. Stocks in Europe and the U.S. fell in 3 percent range, and many Asian markets fell for a second day Wednesday.
Still, oil prices aren't like to fall much amid rising geopolticial tensions following Iran's failure last week to meet IAEA deadline to halt its nuclear program.
"The rhetoric has been increasing over the last week or two and the Iranian issue will remain with traders," Shum said. "Until there are indications of real supply disruptions or any military action, there will not be a major surge in prices. It will support pricing and prevent it from falling much too fast and provide a kind of balance to the Chinese stock market."
Iran's foreign minister, Manouchehr Mottaki, reiterated Tuesday that his country would never again suspend uranium enrichment a move the United States insists on for any negotiations with Tehran.
The U.S. Energy Information Administration will report later Wednesday on the nation's fuel inventories, which analysts expect to show declines in gasoline and distillate stockpiles.
Distillate inventories, which include heating oil and diesel fuel, are likely to fall by 2.6 million barrels, according to a Dow Jones Newswires survey of analysts. A winter storm that pounded the U.S. Midwest and Northeast earlier this week, dropping as much as two feet of snow in some areas, likely pushed up demand.
Gasoline stockpiles, meanwhile, are expected to decline by 1.6 million barrels, while crude oil inventories are expected to rise by 1.2 million barrels, reports AP.
In the other Nymex trading, heating oil futures lost 3.78 cents to US$1.7415 a gallon (3.8 liters) while April natural gas prices fell 7.3 cents to US$7.460 per 1,000 cubic feet.
Russia has deployed two armies and three units of Airborne Forces to its western borders as part of a verification check, Russian Defense Minister Sergei Shoygu said