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China's rate hike contributes to oil price slump
Updated: 2004-10-29 17:06

The surprise interest rise by China's central bank on Thursday has contributed to a continuing slump of the world oil prices this week, edging closer to US$50 a barrel, analysts say.

U.S. light, sweet crude was trading down 39 cents at US$50.53 a barrel in early Asian dealing after losing US$1.54 on Thursday. London Brent crude was down 57 cents at US$47.80 a barrel.

The more than US$5 decline from Monday's US$55.67 a barrel all-time high in New York was triggered by U.S. government data showing a shockingly large rise in crude oil supplies on Wednesday, which spurred some big money funds to take profits out of sizzling prices.

The influx of speculative fund money into the oil market this year has prompted traders to take a more macro-economic view for price direction, focusing in particular on China, the engine behind this year's surge in demand, analysts said.

Just as news of strong gross domestic product expansion in China buoyed oil prices last week, Thursday's surprise interest rate hike -- by a very mild 27 basis points -- rattled oil markets, although the move appeared little more than symbolic.

"I think the impact on the economy will be limited," a spokesman for the central People's Bank of China said.

The economy has slowed for several quarters in a row but grew a still-robust 9.1 percent in the third quarter, but analysts say a sustained series of rate increases or a decision to allow the yuan currency to rise could have a more material impact on growth.

China's oil demand growth is expected to slow from this year's 14.5 percent to 5.7 percent next year, said the International Energy Agency.

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