* Unexpected distillate stock increase sends oil below $80
* More Chinese tightening: higher bank reserve requirements
* Winter conditions seen milder this week
(Updates prices, adds quotes))
By David Sheppard
LONDON, Jan 13 (Reuters) - Oil fell to its lowest level
this year on Wednesday, dipping below $80 a barrel after an
industry report showed rising U.S. distillate inventories,
despite the severe northern hemisphere winter.
The American Petroleum Institute (API) said in its weekly
report late on Tuesday distillate stocks -- which include
heating oil and diesel -- rose by 3.6 million barrels last week.
Expectations had been for a 1.8 million barrel fall.
Prices were also pressured after China surprised world
markets by raising banks' cash reserve requirements, the latest
step towards tightening monetary policy, which some traders see
potentially dampening rising energy demand.
U.S. crude for February delivery <CLc1> fell as much as 1.16
a barrel to $79.63, matching the lowest level on the first
trading day of 2010. Prices pared losses to trade down 89 cents
at $79.90 a barrel by 1133 GMT.
Prices have fallen by more than $4 since hitting a 15-month
high near $84 on Monday.
London Brent crude for February <LCOc1>, which expires on
Thursday, fell 85 cents to trade at $78.45 a barrel.
"The market is trading in the $75-$85 range, and if we are
getting warmer weather, higher inventories and Chinese monetary
policy is changing, then we should now try the lower side of
that range," said Keichi Sano, general manager of research at
SCM Securities in Tokyo.
China, the world's second largest oil consumer, raised the
proportion of deposits that banks must hold in reserve by 0.5
percentage point in a move to keep a lid on inflation.
Concerns that Chinese tightening could moderate the global
economic recovery unnerved financial markets, denting stocks,
higher-yielding currencies and commodities. []
"The Chinese economy is an extraordinary buyer of commodities
and energy, so people are very concerned about its growth pace,"
Sano said.
HIGHER INVENTORIES
On top of higher U.S. distillate inventories, crude and
gasoline stockpiles in the world's largest energy consumer also
rose last week, the API said.
Gasoline inventories soared by 6.8 million barrels, far
surpassing expectations for a 1.2 million barrel build. Crude
stocks rose by 1.2 million barrels, matching analysts
predictions. []
"We cannot recall when the aggregated inventories rose 11.6
million barrels before," said Dennis Gartman, a financial
markets commentator. "The market is clearly concerned and
confused."
Stocks of crude and oil products have bulged in the United
States over the past 18-months as the economic crisis has cut
the demand for energy.
Very cold weather over the last two weeks was expected to
have helped to draw down inflated inventories. Warmer weather
across the central and eastern United States is expected to
arrive in the next few days, DTN Meteorlogic said, reducing
heating demand. []
Government inventory data from the Energy Information
Administration (EIA) will be closely watched when it is
published at 1530 GMT to see if it confirms the API numbers.
(Additional reporting by Alejandro Barbajosa in Singapore;
editing by William Hardy)
