Oil fell as much as 0.8 per cent towards $77 today on speculation that a gradual appreciation of the yuan would have a limited impact on China's petroleum imports in the short term.
China's spot yuan soared on Tuesday, after the central bank set the currency's daily mid-point at the highest level against the dollar since a revaluation in July 2005, signaling the yuan's ascent may continue.
The July contract for US. crude, which expires at the end today's trading session, fell as much as 63 cents to $77.19 a barrel, virtually erasing yesterday's gain, and was down 43 cents at $77.39. It briefly turned positive when the People's Bank of China strengthened today's yuan mid-point.
The more active August contract for US crude, which will become the front month from Wednesday, also shed 43 cents to $78.18, tracking Asian stock markets, with the Nikkei slipping as profit-taking emerged after a bounce to a one-month high the day before.
Front-month US crude touched an intraday 6-1/2-week high near $79 a barrel yesterday, but pulled back as charts indicated technical resistance. Although prices have recovered by 20 per cent from a trough below $65 on May 20, they are still about $10 lower than an early-May 19-month high above $87.
Crude's failure to breach strong resistance at $78.40 -- the 61.8 per cent Fibonacci retracement on the move from $87.15 to $64.24 -- brings a new target of $76.50 into play, according to a Reuters market analyst.
ICE Brent for August declined 53 cents to $78.29.
Yesterday's crude rally came after China's central bank allowed the yuan to surge by nearly 0.5 per cent against the dollar in the spot market, the daily limit, following a pledge at the weekend to make the currency more flexible.
That led to a commodities rally amid prospects for increased buying power from China.
Crude inventories in the US dropped by 1.3 million barrels last week as imports declined, a preliminary Reuters poll of analysts showed yesterday, before Today's weekly industry report from the American Petroleum Institute.
The poll also forecast an average 1.3 million barrel increase in distillates and a slim 100,000 barrel decline in gasoline stocks, ahead of US government statistics to follow on Wednesday from the Energy Information Administration.
Oil services companies went to court yesterday seeking to overturn president Barack Obama's six-month ban on deepwater drilling in the Gulf of Mexico after the worst oil spill in US history.
Reuters