* Unexpected distillate stock increase sends oil below $80
* More Chinese tightening: higher bank reserve requirements
* Winter conditions seen milder this week
* EIA data in focus
(Updates prices, adds quote))
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.
Traders are waiting for the release of data from U.S.
government's Energy Information Administration at 1530 GMT to
see if it confirms the API numbers. []
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 of 2010 seen
on the first trading day of the year. Prices pared losses to
trade down 59 cents at $80.20 a barrel by 1400 GMT.
Prices have fallen by around $4 since hitting a 15-month on
Monday.
London Brent crude for February <LCOc1>, which expires on
Thursday, fell 58 cents to trade at $78.72 a barrel.
"The combination of the API numbers and China's move to
tighten monetary policy set off a correction, but the market has
paused ahead of the EIA data," VTB Capital analyst Andrey
Kryuchenkov said.
"The downside still looks limited though, a correction was
to be expected after the run-up at the start of the year."
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. []
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. []
(Additional reporting by Alejandro Barbajosa in Singapore;
editing by James Jukwey)
