Oil prices fall as market digests China currency move

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Oil prices fell on Tuesday after surging in the previous session as investors weighed the effects of China's announcement that it would allow a more flexible yuan currency.

New York's main futures contract, light sweet crude for delivery in July, dropped 88 cents to 76.94 dollars a barrel while London's Brent North Sea crude for August delivery was off 91cents at 77.91 dollars.

China's weekend announcement it would "strengthen the flexibility" of the yuan had sent oil prices sharply higher Monday on expectations of higher demand from Chinese consumers.

Analysts had interpreted the Chinese central bank's statement as a sign that Beijing was ready to adjust the dollar peg, which has been in place for two years, and allow the currency to rise.

China has effectively pegged the yuan at about 6.8 to the dollar since mid-2008 to prop up exporters during the world financial crisis.

Analysts said on Tuesday that oil prices retreated on signs that any strengthening of the yuan would be gradual.

"The markets are now digesting the news and it would appear that it's not as significant an initiative by the Chinese as some people had hoped," said Jason Feer, vice president with energy market analysts Argus Media.

"I think it's pretty clear the Chinese aren't going to allow a real float of the renminbi (yuan). Over the past few days it's been a financial story for oil, so there's probably been a bit of a pulling back," he told AFP.


© 2010 AFP

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