* Chinese rate rise could slow demand
* No OPEC action expected for now
* World economy can withstand $100 oil - Kuwait
(Updates prices, adds delayed start of NYMEX floor trade in
paragraph 3)
By Barbara Lewis
LONDON, Dec 27 (Reuters) - Oil fell on Monday, unravelling
gains that took it to a 26-month high, after uncertainty about
Chinese fuel demand following a surprise interest rate rise
countered the impact of a blizzard in the U.S. Northeast.
U.S. crude for February <CLc1> traded down 55 cents at
$90.96 a barrel by 9:44 a.m. EST (1444 GMT), after hitting an
intraday peak of $91.88 -- the highest since October 2008. ICE
Brent crude <LCOc1> eased 26 cents to $93.51 a barrel.
Floor trading on the New York Mercantile Exchange was
delayed until 11 a.m. EST after a snowstorm snarled travel in
the U.S. Northeast.
Oil prices have climbed 35 percent since this year's low in
May, driven by the combination of a weakened U.S. dollar and
then unusually cold weather in Europe and the United States
that has boosted heating fuel demand and eroded inventories.
The rise in the price of oil and other commodities has
raised concerns of inflation in major fuel-importing countries.
As it strives to prevent its economy overheating, China,
the world's second-biggest oil burner after the United States,
on Saturday raised interest rates for the second time in just
over two months. [] Markets had expected a rate
rise, but the timing came as a surprise.
When China last raised interest rates in mid-October, oil
fell 4 percent, although the market soon recovered.
Analysts said this time the immediate impact was difficult
to judge because trade is very thin over the year-end holiday
period, but in general a slower Chinese economy implied reduced
oil consumption.
"What it does show is that China is serious when it says
2011 is going to be the year of prudent fiscal policy," said
Olivier Jakob of Petromatrix.
"Further Chinese interest rate hikes will now be expected
for 2011."
WIDER COMMODITIES RALLY INTACT?
Longer-term and especially for other commodities with more
fundamental strength than oil, analysts predicted a raw
materials rally had further to run.
"This certainly doesn't spell the end of the commodities
boom or the strong China story. It's a smart move that may have
caught the market off guard," said Mark Pervan, senior
commodities analyst at ANZ. []
Commodities began to rise around September, coinciding with
a wider financial markets rally, following U.S. quantitative
easing that weakened the dollar.
A weaker dollar stokes buying in dollar-denominated
commodities, made relatively cheap for holders of other
currencies.
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For a graphic showing oil rally in line with equity gains
and dollar weakness:
http://graphics.thomsonreuters.com/F/12/CMD_LQTFX1210.gif
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In December, the rally has also drawn strength from strong
heating oil demand because of unusually cold weather in the
northern hemisphere.
The first widespread blizzard of the season slammed into
the northeastern United States, the world's top heating oil
market, on Sunday. []
Any real increase in demand and a subsequent drop in
inventories could eventually persuade oil producers' group OPEC
to act. But at a conference in Quito earlier in December, OPEC
left existing output targets unchanged.
Ministers have said they would not increase output if a
price rally were based on speculation rather than fundamentals
of supply and demand.
Arab members of the Organization of the Petroleum Exporting
Countries met at the weekend in Cairo when Kuwait's oil
minister said the global economy could withstand an oil price
of $100 a barrel.
Other exporters indicated OPEC might decide against
increasing output throughout 2011 as the market was well
supplied. []
Regardless of OPEC output policy, production could rise
from Iraq, which is excluded from OPEC's system of supply curbs
as it recovers from war and sanctions.
Iraq's new Oil Minister Abdul Kareem Luaibi on Monday said
the nation's production exceeded 2.6 million barrels per day
for the first time in 20 years. []
(Additional reporting by Randy Fabi; Editing by Alison Birrane
and Dale Hudson)
