Oil slips on dollar rise, China slowdown fears

Oil slipped in early New York trading on Tuesday as the dollar hit a 2-1/2 month high against the euro on concerns that Europe's debt crisis may widen and on worries over demand in China as the No. 2 consumer seeks to brake energy demand growth and cool inflation.
U.S. heating oil and gasoline futures fell back as front-month December products contracts were set to expire on Tuesday, weighing on crude. On Monday, cold weather boosted distillates and tight New York Harbor supplies lifted gasoline, helping crude prices rise.
U.S. crude oil for January delivery fell 62 cents to $85.11 a barrel by midday, having earlier slipped as low as $84.63. Even a close at that intraday low would leave oil up nearly 4% for the month.
In London, ICE January Brent crude fell 53 cents to $86.81 a barrel.
While U.S. economic data was mixed on Tuesday, reports showing consumer confidence at a five-month high in November and Midwest business activity growing faster than expected helped curb oil losses, even as falling home prices disappointed.
"Better consumer confidence and Chicago PMI data helped limit crude losses this morning," said Tom Bentz, broker at BNP Paribas Commodities Futures Inc in New York
Converting prices to euros, Brent reached its highest level for almost seven months on Tuesday, climbing above 67 euros per barrel.
Robert Montefusco at Sucden Financial in London said the weakness of the euro was putting increased pressure on oil.
"That puts pressure on the fundamentals," Montefusco said. "Fear of contagion with not only Portugal and Spain, but now with France and Belgium in focus as well."
Oil and dollar-denominated commodities often move inversely to the dollar. A stronger dollar typically pressures oil prices as it boosts the value of greenbacks paid to producers while making it more expensive for consumers with other currencies.
China's key Shanghai stock index closed at a seven-week low, with a shortfall of cash in the domestic money market creating a liquidity squeeze.
Analysts said cash drying up was prompting speculative retail investors, already on edge about whether the central bank would introduce further tightening measures, to sell heavily weighted financials and commodity issues.
Factories in Japan and South Korea, Asia's second- and fourth-largest oil users, cut output in October, in a region oil producers look to for demand growth.