* China inflation lower than expected
* U.S. retail sales up 0.3 pct, lower than forecast
* Coming Up: API weekly inventory data
(Recasts, updates prices, adds analyst quote)
By Claire Milhench
LONDON, Feb 15 (Reuters) - Brent crude oil slipped on
Tuesday and U.S. crude climbed as markets began to close the gap
between the two benchmarks after a lengthy period in which the
Brent premium to U.S. crude had become overextended.
The price differential between the two reached $16.30 on
Friday. Analysts and traders have said that a correction was
overdue.
"It is just not sustainable to have such high differentials
between the two products," said Thorbjorn Bak Jensen, an oil
market analyst at Global Risk Management. "Trades have just
gotten too extended and now markets are beginning to normalise."
Brent crude for April delivery <LCOc1> was down 20 cents to
$102.88 barrel by 1445 GMT, after earlier pushing to $104.04 in
the session. Jensen said Brent was meeting technical resistance.
U.S. crude for March delivery <CLc1> was up 58 cents to
$85.39 at the same time, after earlier climbing $1.07 to $85.88.
The U.S. benchmark had fallen to 2-1/2-month lows in the
previous session.
"West Texas Intermediate is so undervalued relative to Brent
and other grades imported to the U.S. that it seems to have
rallied more strongly because it is so out of line," said Tony
Machacek, a futures broker at Bache Commodities.
U.S. crude has been dogged by high oil stockpiles at the key
landlocked delivery point in Cushing, Oklahoma. In contrast,
Brent rallied hard on Monday and stayed strong Tuesday morning,
supported by lower than expected Chinese inflation figures and
unrest in Bahrain and Iran.
"We are seeing contagion from Tunisia and Egypt to other
countries that are more important for the oil markets," said
Christophe Barret, oil analyst at Credit Agricole Corporate and
Investment Bank.
Iran produces about 3.7 million barrels a day, making it the
second largest OPEC producer.
"With Saudi Arabia's spare capacity at roughly 3.5 million
barrels a day it could have a severe impact on the oil market if
you have any interruption in oil exports from Iran."
Also lending support was China's consumer price inflation
coming in lower than expected for January at 4.9 percent. A
Reuters poll had forecast 5.3 percent []. China is
the world's second largest consumer of oil after the United
States.
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For a graphic on Chinese inflation click:
http://link.reuters.com/zan97r
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"Inflation was lower than initially feared so there is less
need for strong tightening and the previous tightening hasn't
had any negative impact on commodity demand from China, as
suggested yesterday by the strong impoort data," said Carsten
Fritsch, a commodity analyst at Commerzbank. "I think the fears
are much exaggerated."
China's crude oil imports for January have risen 27 percent
from a year ago as refiners raise production and beef up diesel
inventories to fight a drought [].
U.S. retail sales for January came in lower than expected at
0.3 percent, instead of the 0.6 percent forecast, likely
reflecting poor weather conditions that kept shoppers indoors
[].
The market is now looking to U.S. weekly crude inventories
from the American Petroleum Institute (API) due at 2130 GMT.
A Reuters poll forecast a rise in crude oil stockpiles for
the fifth week in a row, to 2.6 million barrels, due to a
rebound in imports [].
The dollar <.DXY> fell 0.19 percent against a basket of
major currencies to 78.464. A weaker U.S. currency is generally
supportive for commodities priced in dollars as it makes it
cheaper for buyers using other currencies.
(Reporting by Claire Milhench; additional reporting by Jennifer
Tan in Singapore; editing by William Hardy)
