Oil slips as year-end nears, despite inventory drop
HOUSTON (Reuters) - U.S. crude oil prices slumped on Thursday, dropping below $90 a barrel, as investors focussed on booking year-end profits after the recent rally above $91, shrugging off supportive economic data and a government report showing crude inventories fell last week.
Falling gasoline stockpiles, expected holiday driving demand and hopes that the economic recovery is strengthening helped U.S. gasoline futures finish with a slight gain.
Crude oil prices briefly pared losses when the government said U.S. crude oil stockpiles fell less than expected last week, contrary to the industry report late Wednesday showing a crude stocks build.
Oil prices fell despite news that U.S. initial jobless claims fell to their lowest level in more than two years last week, Midwest factory activity grew in December at its fast pace since 1988 and pending sales of previously owned homes were up more than expected in November.
U.S. crude oil for February delivery fell $1.28, or 1.4 percent, to settle at $89.84 a barrel, trading from $89.02 to $91.40.
Total crude futures trading volume was thinned by the holidays, with just over 386,000 lots traded compared to the 30-day average of 553,099 lots, according to Reuters data.
In London, ICE Brent crude for February fell $1.05 to settle at $93.09 a barrel.
U.S. prices had traded range bound near $91 a barrel after touching a 26-month high of $91.88 a barrel on Monday and approaching the February crude contract high of $93.87.
Based on Thursday's settlement price, U.S. crude futures were on track to end 2010 up about 13 percent from the December 31, 2009, close of $79.36 a barrel. Prices ended 2009 up 78 percent from the 2008 year-end settlement at $44.60, the biggest percentage calendar year rise in a decade.
"We viewed today's sharp crude sell-off as more related to year-end long liquidation that appeared facilitated by a few block type orders than to any guidance out of this morning's EIA report or economic releases," Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois, said in a note.
U.S. equities ended lower as a recent rally and light volume left investors reluctant to take on much more risk before the new year. .N
In addition to the incentive to book profits at year's end, the positive economic data might cause the U.S. Federal Reserve to curb its recent initiatives to spur economic recovery, which could strengthen the dollar and limit price boosts for dollar-denominated commodities.
"While the weekly (unemployment) claims number is supportive on its face, a continuation of that level or lower would allow the Fed to curtail further quantitative easing plans for 2011, bolstering the dollar and keeping a lid on commodity prices," said John Kilduff, a partner at Again Capital LLC in New York.
CRUDE INVENTORIES FALL AGAIN
U.S. crude stocks eased by 1.26 million barrels to 339.43 million barrels in the week to December 24, the Energy Information Administration said on Thursday, less than the drop of 2.6 million barrels analysts had expected. <EIA/S>
Crude inventories fell for a fourth straight week, according to EIA data, as companies allowed stocks to slide for end-year accounting purposes.
The EIA's data contradicted an industry report from the American Petroleum Institute on Wednesday that showed crude supply rose last week by 3.1 million barrels. <API/S>
Crude stocks at the delivery hub for the U.S. crude contract at Cushing, Oklahoma, rose 245,000 barrels to 36.64 million as of December 24, the EIA said.
Cushing inventories fell 117,946 barrels to 40.025 million barrels in the week to December 28, according to industry tracker Genscape's data released on Thursday.
Gasoline stocks fell by 2.32 million barrels, the EIA said on Thursday, after analysts had forecast a 1.4-million-barrel rise. Ahead of contract expiration on Friday, U.S. January gasoline futures rose 0.14 cent to settle at $2.3918 a gallon.
Distillate inventories, which include heating oil and diesel fuel, rose 243,000 barrels, against analysts' expectations for a 600,000-barrel draw.
Even with crude stocks slipping four straight weeks and prices peeking above $90 a barrel, OPEC output has risen only slightly in December as Nigerian supply increased, a Reuters survey found on Thursday.
Supply from the 11 OPEC members with output targets has averaged 26.75 million barrels per day this month, up from 26.70 million bpd in November, according to the survey of oil companies, OPEC officials and analysts.
(Additional reporting by Zaida Espana in London and Randy Fabi in Singapore; Editing by Walter Bagley and David Gregorio)
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