Heating oil down as yuan announcement reconsidered

22 June 2010

Written by Kim Bardsley

Heating oil prices were losing ground on the New York Mercantile Exchange this morning (June 22nd) as traders questioned the extent of yesterday's rally.

Traders were rushing into fuel commodities yesterday following the People's Bank of China's decision to lift the yuan's peg against the dollar, which many critics have blamed for a growing trade imbalance between the US and China.

As the yuan rose sharply, commodities traders pushed crude towards $78 a barrel and heating oil above $2.14 a gallon, with a stronger currency expected to make fuel cheaper for the domestic market.

But as prices fell this morning, Yingxi Yu, a Singapore-based commodities analyst with Barclays Capital, told Reuters the market may have overreacted yesterday.

"It's a positive boost to sentiment following a period of severe risk aversion that has been hitting risky assets including oil, but in terms of the impact on Chinese commodities demand, it's more ambiguous," he said.