* China lifts interest rates for second time in six weeks
* U.S. crude inventories seen up last week-poll
* Coming up: American Petroleum Institute data at 2130 GMT
(Adds quotes, updates prices)
By Zaida Espana
LONDON, Feb 8 (Reuters) - Oil prices fell on Tuesday after
China moved to tame inflation with an interest rate increase,
the second lift in just over six weeks. []
U.S. crude (WTI) for March <CLc1> fell by $1.36 to $86.12 a
barrel by 1229 GMT. ICE Brent <LCOc1> lost $1.25 to $98.00 a
barrel.
"I think it was a largely expected move, they are trying to
put pressure on the economy in 2011 as they don't want inflation
to rise too much," Credit Agricole CIB's analyst Christophe
Barret said. "Of course it will have an impact on oil demand."
Stronger interest rates may act to tame oil demand growth in
China, which according to the International Energy Agency has
overtaken the United States as the world's largest energy
consumer.
"Sentiment wise (the rate increase) is concerning, otherwise
everyone knows that demand growth is slowing this year," said
Andrey Kryuchenkov, analyst with VTB Capital.
Prices were also under pressure ahead of the latest United
States weekly stockpiles data from industry body the American
Petroleum Institute, which was expected to show another build.
In addition, crude's geopolitical risk price premium from
the unrest in the Middle East, including the protests in Egypt,
was seen fading.
"Egypt, at the centre of the crisis, is evidently losing its
ability to frighten markets," Commerzbank analyst Carsten
Fritsch said in a note.
"Initially feared disruptions to shipments in the Suez Canal
have not happened and are no longer seen as an acute threat.
Provided events do not escalate further, oil prices could
retreat more," Fritsch said.
Although a small oil and gas exporter itself, Egypt is key
for global crude and oil product flows through the Suez canal
and the Suez-Mediterranean (Sumed) pipeline, which have not been
affected by the protests.
Despite receding price support from the recent spate of
unrest in the Middle East, Barclays oil analysts said
geopolitical risk will likely support further price increases
this year.
"In a world where spare capacity is being taken less for
granted, price breakouts due to geopolitical reasons are
becoming more likely and are likely to persist all through this
year," Barclays wrote in a note.
EYES ON U.S. STOCKPILES
U.S. crude inventories were expected to rise for the fourth
consecutive week, according to a Reuters poll, with industry body
American Petroleum Institute to release weekly data at 2130 GMT.
The U.S. government's Energy Information Administration will
follow with its own report on Wednesday. [] []
Another build in crude stockpiles at the delivery hub of
Cushing, Oklahoma, could drive stocks to new highs after rising
to a record 38.33 million barrels in the week to Jan. 28, based
on data from the EIA.
"A further inventory build in Cushing could push down the
price of the front-month WTI contract, steepen the WTI forward
curve further and lead to a renewed widening of the price gap
between Brent and WTI," Commerzbank's Fritsch said in the note.
Brent's premium to WTI <CL-LCO1=R> remained strong at 11.81
by 1231 GMT, albeit off record highs of 12.50 in late January.
"U.S. crude stocks provide forward demand cover for 24 days,
the highest seasonal level since 1994 while total product
inventories are similarly swollen," JBC wrote in a note.
(Additional reporting by Patryk Wassilewski in London and
Seng Li Peng in Singapore; Editing by William Hardy)
