By Christian Schmollinger Jan. 7 (Bloomberg) -- Crude oil fell in New York, snapping 10 days of gains, on concern the rally is unsustainable after a U.S. government report yesterday showed an unexpected increase in stockpiles. Traders sold contracts to lock in gains from the 15 percent climb in oil prices since Dec. 21. The Energy Department said crude inventories rose 1.3 million barrels last week, the first increase in five weeks. Stockpiles were forecast to fall, according to a Bloomberg News survey. “When you get these rallies, sometimes the market just needs to catch its breath,” said Clarence Chu, a trader with options dealers Hudson Capital Energy in Singapore. “I don’t think this rally is sustainable. Fundamentally the support just isn’t there; we should be back below $80.” Crude oil for February delivery declined as much as 67 cents, or 0.8 percent, to $82.51 a barrel in electronic trading on the New York Mercantile Exchange. It was at $82.95 a barrel at 4:13 p.m. Singapore time. Oil also fell on speculation China’s move to slow bank lending may reduce commodity demand in the world’s second- largest energy consumer. China’s central bank sold three-month bills at a higher interest rate for the first time in 19 weeks after saying its focus for 2010 is controlling the record expansion in lending and curbing price increases. Cold Weather Technical indicators used by traders show oil’s gains may have come too far, too fast. The 14-day relative strength index was at 69.66, after reaching 72.58 yesterday. Readings above 70 indicate prices have climbed too quickly. Oil fell 2.3 percent on Oct. 26 after the RSI rose above 70 the previous week. Freezing weather in the U.S., China and Europe supported the 10-day rally in prices. Temperatures in the U.S. Northeast, which consumes about four-fifths of the country’s heating oil, may remain below normal through Jan. 16, according to the National Weather Service. Northern China may see temperatures as low as minus 32 degrees Celsius (minus 26 Fahrenheit) today, the China Meteorological Administration said. The country is the second- largest energy consumer. Oil declined as much as 92 cents, or 1.1 percent, yesterday after the release of the Energy Department’s inventory report. Prices later advanced 1.7 percent as the dollar dropped against the euro, spurring interest in commodities as an alternative investment. Oil Inventories Crude supplies at Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is stored, surged 1.16 million barrels to 35.7 million last week, the highest level since tracking began in 2004. Stockpiles of distillate fuel, a category that includes heating oil and diesel, slipped 233,000 barrels to 159 million, 16.1 percent above the five-year average level, according to the Energy Department. A 1.85 million-barrel drop was estimated. Brent crude oil for February settlement fell as much as 68 cents, or 0.8 percent, to $81.21 a barrel on the London-based ICE Futures Europe exchange. It was at $81.48 at 3:47 p.m. Singapore time. The contract climbed 1.6 percent to close at $81.89 yesterday. To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.

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