U.S. oil slips 6th day on economic concerns

By Robert Gibbons

NEW YORK | Tue Jan 25, 2011 5:26pm EST

NEW YORK (Reuters) - Oil prices fell on Tuesday as a contraction in Britain's economy and India's interest rate hike to rein in inflation fueled concerns about economic growth and the effect of rising commodity costs.

Commodity markets felt pressure from concern that monetary tightening in India and China, intended to curb inflation, might continue as raw materials and food costs rise. The 19-commodity Reuters Jefferies CRB index .CRB fell 1.5 percent, its largest one-day loss since January 4.
U.S. oil fell a sixth straight session for the first time since July 6, as investors awaited weekly oil inventory reports expected to show crude stocks rose last week.
U.S. crude oil for March delivery fell $1.68, or 1.91 percent, to settle at $86.19 a barrel, trading as low as $86.12, lowest since prices fell to $83.63 on December 1.
Traders and analysts said crude had technical support near the March contract's 100-day moving average just above $86.
In London, ICE Brent crude for March fell $1.36, or 1.41 percent, to settle at $95.25.
"Maybe, just maybe, there are still risks in this global economy of ours," Phil Flynn, analyst at PFGBest Research in Chicago said, referring to data showing Britain's economy contracted in fourth-quarter 2010 as December's heavy snow took more of a toll than forecast.
The U.K. surprise and India's interest rate hike designed to clamp down on inflation added to concerns about slower economic growth already fanned by China's recent efforts to curb overheated inflation.
Focus on the threat from commodity inflation to economic growth came on the first day of the U.S. Federal Reserve's two-day policy meeting. Investors awaited the Fed's announcement on Wednesday at 2:25 p.m. (915 GMT) to sift out any policy changes.
U.S. data was mixed on Tuesday. While consumer confidence improved more than expected in January, to its highest level in eight months, a separate report showed U.S. home prices fell in November, although the drop was not as sharp as expected.

U.S. OIL INVENTORY DATA EYED
The spread between the U.S. front-month March and April crude contracts was around $1.70, keeping the incentive in place to buy and store crude in order to sell it at higher prices in future months.
"The WTI forward curve has steepened further at the front end, because the front-month futures contract has come under greater pressure than the contracts thereafter," Commerzbank analysts said in a note.
High U.S. crude inventories, especially at the Cushing, Oklahoma, delivery point for the U.S. crude contract, have helped keep U.S. crude prices below Brent.
Brent crude's premium over U.S. benchmark West Texas Intermediate (WTI) crude seesawed but hovered near $9 a barrel after reaching $9.76 on Monday.
U.S. crude oil inventories rose more than expected last week, up by 2.1 million barrels as imports jumped 1 million bpd, according to industry group American Petroleum Industry's report late on Tuesday. <API/S>
But distillate inventories, which include heating oil and diesel fuel, fell 5 million barrels, the API said, including a 2.4 million barrel slide in heating oil stocks alone, reflecting strong heating fuel demand.
Gasoline stocks rose, the API said, but only 1.7 million barrels, less than expected.
A Reuters analyst survey ahead of the API data had forecast U.S. crude oil inventories to be up 1.2 million barrels. Distillate stocks were expected to be down, but only by 300,000 barrels, with gasoline stocks seen up 2.1 million barrels.
U.S. crude prices were little changed in post-settlement trading after the API report.
The closely watched inventory report from the U.S. Energy Information Administration is set for release on Wednesday at 10:30 a.m. EST