In London, Brent crude for March delivery lost $1.31 to settle at $76.32 a barrel. US equities suffered their worst slide of 2010 on Wednesday as investors worried that bank lending restrictions in China could hurt the global economic recovery. New US housing starts unexpectedly fell in December, while US producer prices rose 0.2 percent last month.
Investors have looked to wider economic data over the past year for signs of economic recovery and a potential rebound in energy demand. "The petroleum markets continue to take much of their guidance from the financial markets, with both the retreat in the equity markets and the firmer US dollar prompting short-term traders to sell petroleum," said Tim Evans, energy analyst at Citi Futures Perspective in New York.
Book squaring on front-month February crude ahead of expiry was contributing to the day's volatility, Evans added. Chinese banking authorities instructed some major banks to stop new lending for the rest of January, after loan growth surged in the first few weeks of the year, official media and banking sources said on Wednesday.
Last week China raised bank reserve requirements for the first time since June 2008. "China's plans to tighten credit markets continue to cause concern, meaning that the release of (Chinese) GDP and other economic data tomorrow will have to be very bullish to offset this," said David Wech, head of energy studies at JBC Energy in Vienna.
China's December economic indicators were to be published late on Wednesday. Analysts say Chinese industrial production probably grew at its fastest pace in almost four years, jumping by 20 percent in the year to December, compared with a reading of 19.2 percent in November.
US crude inventories likely rose for a third straight week as imports increased and refinery utilisation fell with the start of the maintenance season, an updated Reuters poll of analysts showed. US inventory reports were expected from the American Petroleum Institute later on Wednesday and from the Energy Information Administration on Thursday.
US crude stockpiles were expected to have gained 2.4 million barrels on average in the week ended January 15, a survey of sixteen analysts showed. Distillate stocks were projected down 100,000 barrels, while gasoline stocks probably rose 1.7 million barrels. The country's refinery utilisation was forecast to have fallen 0.4 percentage point to below 81 percent of capacity. Some US refineries have begun their first-quarter maintenance, with the goal of retooling for gasoline production ahead of the summer driving season.