UPDATE 7-Oil slips after 26-month high, China rates weigh

                                
 * Chinese rate rise could slow demand in No. 2 consumer
                                
 * No OPEC action expected for now as mins shrug off $100
                                
 * St. Croix refinery restarts gasoline unit after 2 weeks
                                
 * Coming up: CFTC trader position data at 3:30 p.m. EST
 (Releads to include refinery restart, updates prices, adds
quote, previous dateline LONDON)
                                
 By Jonathan Leff
                                
 NEW YORK, Dec 27 (Reuters) - Oil dipped on Monday after
briefly hitting its third successive 26-month high, ending a
five-day rally after a Chinese rate increase threatened to slow
demand and a major East Coast refinery resumed operations.
                                
 As a major blizzard in the U.S. Northeast further
diminished already thin holiday trading volume and threatened
to stoke oil demand for home heating, many traders expected the
fourth-quarter rally to quickly resume toward $100 a barrel as
key OPEC members showed no sign of wanting to halt its rise.
                                
 U.S. crude for February <CLc1> fell 28 cents to $91.23 a
barrel by 12:14 a.m. EST (1714 GMT), after hitting an intraday
peak of $91.88 -- the highest since October 2008. ICE Brent
crude <LCOc1> rose 18 cents to $93.95 a barrel, with very light
trade as most London markets were shut until Wednesday.
                                
 Floor trading on the New York Mercantile Exchange began two
hours later than usual at 11 a.m. EST after a snowstorm snarled
travel in the U.S. Northeast, but electronic trading ran as
normal although activity was a fraction of the usual.
                                
 Despite the thin conditions traders had two major Christmas
factors to absorb on Monday: China's second interest rate rise
in just over two months, and an Arab oil ministers' meeting
that underscored OPEC's resistance to pumping more crude.
                                
 Although Beijing's quarter-point rate rise had been
expected as it strives to keep its economy from overheating and
temper inflation, the timing was a surprise. But most markets
took the news in stride, despite the underlying fear higher
rates could slow commodity demand. [ID:nTOE6BO010]
                                
 When China last raised interest rates in mid-October, oil
fell 4 percent, although the market soon recovered -- and has
gained over 9 percent since then.
                                
 "I think the Chinese rate thing is going to give us a
little bit more of a correction on the downside, but it's not
going to be a big bust because you'd have seen it by now," said
Edward Meir, energy and metals analyst at MF Global.
                                
 But OPEC comments at the weekend's OAPEC meeting in Cairo
lent support as Kuwait's oil minister said the global economy
could withstand an oil price of $100 a barrel. Others in the
group showed little inclination to consider raising production
before the group's next meeting in June. [ID:nLDE6BO01P]
                                
 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, and from other big Gulf
members who may pump more oil without a change in policy.
                                
 REFINERY RESTART VS BLIZZARD DEMAND
                                
 Oil prices have climbed 27 percent since late August,
driven by the combination of a weakened U.S. dollar and
unusually cold weather in Europe and the United States that has
boosted heating fuel demand and eroded inventories.
                                
 A persistent shortage of gasoline in the New York harbor
area has contributed to those gains, although some tightness
could be eased by the restart of the Hovensa St. Croix 150,000
barrel-per-day (bpd) gasoline making fluid catalytic cracker on
Dec. 24 after an outage of over two weeks.
                                
 U.S. gasoline futures for January <RBc1> fell 1.22 cents,
or 0.5 percent, to $2.4304 a gallon on Monday, outpacing
crude's 0.3 percent losses.
                                
 Heating oil also fell, with traders looking beyond the
short-term heating demand boost of the first severe snowstorm
of the season in the Northeast -- the biggest heating oil
market in the world -- to more benign conditions later this
week.
                                
 Demand for heating oil this week will average 1.2 percent
below normal, after last week exceeding the norm by around 4
percent, the National Weather Service said. [ID:nSGE6BQ02S]
                                
 Longer-term, and especially for other commodities with more
fundamental strength than oil, analysts predicted the rally had
further to run, notwithstanding China's rates.
                                
 "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. [ID:nL3E6NR07X]
 (Additional reporting by Randy Fabi in Singapore and Barbara
Lewis in London; Editing by Alison Birrane and Dale Hudson)