Crude moves lower as yuan fever fades

22 June 2010

Written by Bob Burton

Crude oil prices moved lower during the electronic trading session of the New York Mercantile Exchange this morning (June 22nd), paring gains made yesterday as the Chinese yuan rose.

Over the weekend, the People's Bank of China announced that it would scrap the currency's peg to the US dollar, which has been in place since the beginning of the financial crisis and has become an increasing point of tension between the US and China.

Many high-profile politicians have called for sanctions to be imposed on China to encourage it to allow its currency to appreciate to avoid a deepening trade imbalance.

Following the announcement to lift the peg, commodities traders bought up crude, gasoline and distillates including heating oil, anticipating that a stronger Chinese currency would boost domestic demand.

After the fever of yesterday's rally, traders pulled the commodity back towards $77 a barrel, recognising that any rise in fuel consumption will be played out over the long term.

Speaking to Bloomberg, Victor Shum, a senior principal with energy consultants Purvin & Gertz, explained: "The European debt crisis, the fragile recovery of the US economy - those things still prompt investors to lock in profits when oil prices gain."