Oil slips below US$82

Oil slipped below US$82 a barrel overnight, retreating from an eight-week high hit the previous session, as a spike in Chinese inflation fed concern that potential monetary tightening could dent energy demand in the world's second largest oil consumer.

Consumer inflation has soared to a 16-month high in China, and a raft of economic data showed broad-based strength, providing fresh arguments for policy tightening in a bid to stop the economy overheating.

"Crude prices are struggling on concerns about the coming moves by China to manage its economic output. The inflation reading there appears to be above their comfort level, and moves to tame the economy will likely impact energy demand," said John Kilduff, partner at Round Earth Capital in New York.

US crude for April CLc1 fell 22 cents to US$81.87 a barrel by 12:17 pm (6.15am NZT), after touching US$83.03 on Wednesday, the highest level since oil's 15-month high of US$83.95 on January 11.

London ICE April Brent LCOc1 fell 33 cents to US$80.15 a barrel.

China's booming economy has seen oil imports soar, hitting their second highest ever monthly level in February.

On Wednesday, Opec said Chinese daily oil demand has jumped by almost 2 million barrels in just five years to stand around 8.6 million barrels per day.

The US trade deficit narrowed unexpectedly in January as oil imports fell to their lowest since February 1999, a government report showed, which helped pressure crude prices. US exports fell, but not as much as the oil-led drop in imports.

"The US trade deficit being lower than expected this morning speaks of a US consumer that continues to struggle," said Kilduff.

A smaller than expected drop in the number of US workers filing new applications for unemployment benefits also weighed on sentiment, but falling gasoline inventories in the United States and the first signs of a recovery in demand in 18 months supported prices. 

The dollar was near unchanged against the euro in volatile trade on Thursday. The dollar is up almost 8 per cent since the end of November.

A stronger dollar boosts the purchasing power of oil exporters, including Opec members. A weaker greenback usually supports oil prices as it makes dollar-denominated commodities less expensive for holders of other currencies.

The Organisation of the Petroleum Exporting Countries (Opec), which pumps at least one in every three barrels of oil, meets in Vienna on March 17 to discuss production policy. \

Officials have said they do not expect a change in targets while prices are within their desired range.

"You are going to see US$75 to US$85 until Opec changes their views," said Peter McGuire, managing director of Commodity Warrants Australia in Sydney.

"Given that the US dollar is appreciating, they are relatively content with what they are receiving for their oil."

Opec has restricted output since the onset of the financial crisis in a bid to support prices. But the group's compliance with its officially targeted cut of 4.2 million barrels per day (bpd) has slipped to just 53 per cent as prices have risen.

Output from the organisation is bloating US crude inventories.

They have climbed for the past six weeks, showing a 1.4-million-barrel gain to 343 million barrels in the week to March 5, the Energy Information Administration (EIA) said on Wednesday.

The nation's gasoline stockpiles showed a surprise decrease of 2.9 million barrels, the EIA said, while distillate stocks including heating oil and diesel fell by 2.2 million barrels.

US total oil product demand over the past four weeks was 19.41 million bpd, up 3.8 per cent from a year ago, showing the first consistent recovery in demand for 18 months.

- AP