Oil slipped below $78 a barrel on Wednesday on fresh evidence of tightening credit policy in China, a stronger dollar and expectations that U.S. refiners processed less crude in the latest week.

U.S. crude for February delivery fell around 2 percent to $77.45 a barrel by 1514 GMT on its last day as the front-month NYMEX contract. March crude fell $1.53 to $77.79. London Brent for March fell $1.49 to $76.14.

A stronger dollar also weighed on crude. The euro fell to its lowest level in five months against the dollar and sterling on Wednesday on concern about Greece's fiscal problems.

New U.S. housing starts unexpectedly fell 4.0 percent in December, and U.S. producer prices rose 0.2 percent last month, but investors did not interpret the data as being dollar-negative.

We're starting to see the commodity trade come off, mostly on the stronger dollar, said market analyst Michael Hewson at CMC Markets in London.


Investors have grown increasingly jittery over China's steps to limit the availability of credit and head off inflation.

Chinese banking authorities have 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 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 will be published on Thursday at 0200 GMT. 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.


Separately, U.S. crude inventories likely rose for a third straight week as imports increased and refinery utilization fell with the start of the maintenance season, a preliminary Reuters poll of analysts showed.

U.S. inventory reports this week are due out a day later than usual because of Monday's Martin Luther King Jr. holiday. The American Petroleum Institute will issue its industry report later on Wednesday at 2130 GMT.

The Energy Information Administration will publish government data on Thursday at 1600 GMT.

U.S. crude stockpiles were expected to have gained 2.5 million barrels on average the week ended January 15, a survey of eight analysts showed.

Distillate stocks were projected up 400,000 barrels, with heating oil demand expected to have fallen amid moderating winter temperatures in the U.S. Northeast. Gasoline stocks probably rose 1.9 million barrels.

The country's refinery utilization was forecast to have fallen 0.3 percentage point to 81.0 percent of capacity.

Some U.S. refineries have begun their first-quarter maintenance, with the goal of retooling for gasoline production ahead of the summer driving season.

(Additional reporting by Alejandro Barbajosa in Singapore, editing by Amanda Cooper)