Traders in the crude oil options pit at the New York Mercantile Exchange. Oil for May delivery dropped as much as 97 cents to $107.50 a barrel and was at $107.95 at 12:45 pm London time. Jin Lee / Bloomberg

Oil falls from highest level in 30 months after China raises rates

LONDON - Crude fell from its highest level in more than 30 months as forecasts for growing inventories in the United States and an interest-rate increase in China fanned concern that demand in the world's two biggest oil consumers may slow.

Futures slid as much as 0.9 percent in New York before a report on Tuesday that may show supplies increased by 1 million barrels last week, and after China's central bank raised one-year lending and deposit rates. Prices also fell after the New York Times reported that sons of Libya's Muammar Gadhafi are seeking his removal, stoking speculation that the fighting that has crippled the country's oil exports may ease.

"China just has to keep putting the brakes on, as inflation is too high," said Axel Herlinghaus, a Frankfurt-based senior commodities analyst at DZ Bank AG, which trades crude in London and New York. "This could reduce demand at the margin."

Oil for May delivery on the New York Mercantile Exchange dropped as much as 97 cents to $107.50 a barrel and was at $107.95 at 12:45 pm London time. It traded as high as $108.78 a barrel on Monday, the front-month contract's highest price since Sept 24, 2008. Brent for May settlement fell as much as $1.11, or 0.9 percent, to $119.95 a barrel on London's ICE Futures Europe exchange. The contract rose to $121.29 a barrel on Monday, the highest since Aug 4, 2008.

The European benchmark traded at a premium of $12.60 a barrel to US West Texas Intermediate (WTI) futures. The difference between front-month contracts in London and New York surged to a record $19.54 on Feb 21 as unrest spread in North Africa and supplies climbed at Cushing, Oklahoma, the delivery point for WTI.

China raised interest rates by 25 basis points, the fourth increase since the global financial crisis, to restrain inflation in the world's fastest-growing major economy.

The increase "might put a brake on growth in oil demand in China", said Paul Harris, head of natural resources risk management at Bank of Ireland in Dublin.

In Libya, at least two of Gadhafi's sons are proposing a plan to move him from power and oversee a democratic transition under his son, Saif al-Islam, the New York Times reported on Monday citing an unidentified diplomat and Libyan official.

Libya was Africa's third-largest producer before the conflict began, pumping 1.6 million barrels a day in January, according to Bloomberg estimates. Output has slumped to a "trickle", the International Energy Agency said last month.

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