Oil slips, ends lower on profit taking

HOUSTON (Reuters) - Oil prices fell on Wednesday, but stayed close to recent 26-month highs above $91 a barrel, pulled down in light trade by profit-taking as markets awaited the release of weekly U.S. oil inventory data.

Oil rigs are seen in Midland, Texas May 9, 2008. REUTERS/Jessica Rinaldi

Analysts expected a drawdown in crude oil inventories for the fourth consecutive period last week as refiners reduced imports for year-end tax considerations.

U.S. crude for February delivery fell 37 cents, or 0.4 percent, to settle at $91.12 a barrel, trading from $90.80 to $91.53. Crude prices reached $91.88 intraday on Monday, their highest level since October 2008.

In London, ICE Brent crude settled 24 cents lower at $94.14 a barrel.

“We’re seeing light long liquidation before the end of the year, a day after crude showed amazing resilience, switching courses in the middle of the stream,” said Peter Beutel, president of Cameron Hanover.

U.S. oil prices hit a 26-month high at $91.88 on Monday, after a major blizzard hit the Northeastern United States and similarly cold temperatures on the other side of the Atlantic pushed up demand.

The gains on Monday, however, were later tempered by a Chinese rate increase that threatened to slow demand in the world’s second biggest oil consumer.

Warmer weather forecasts after the massive blizzard that pummelled the U.S. Northeast also cast doubts on sustained domestic demand for heating fuel and helped weigh on crude prices.

Late Wednesday, the industry group American Petroleum Institute reported U.S. crude oil stocks rose 3.1 million barrels in the week to December 24, <API/S> against analysts expectations that stock would fall. Gasoline stocks fell 3.1 million barrels and distillate stocks rose 1.4 million barrels, in both cases counter to expectations.

Crude inventories in the world’s biggest economy were expected to be down 2.6 million barrels in the week to December 24, while gasoline stocks were seen up 1.4 million barrels and distillate inventories were expected to be down 600,000 barrels, according to a Reuters survey ahead of the API report.

Crude prices showed little reaction to the API data, with crude futures ending post-settlement trading on the Globex platform down 54 cents.

The industry now turns its attention to the more closely watched data from the U.S. Energy Information Administration scheduled for release on Thursday at 11 a.m. EST (4 p.m. British time).

U.S. crude bounced off its lows on Wednesday after the dollar fell to session lows versus the yen and euro as U.S. bond yields dropped following a solid auction of seven-year Treasury notes.

The S&P 500 headed for its best December in nearly two decades as U.S. stocks advanced in thin trade on Wednesday, lifted by investor optimism about the economy in 2011. .N

“The dollar’s fall lent support to crude, but there was no huge move since there aren’t a lot of people in. This is the effect of light, choppy and directionless trade before the holidays,” said Mark Waggoner, president of Excel Futures Inc in Oregon.

Crude trading volumes on the New York Mercantile Exchange remained thin, with many players out due to the holidays.

“The market seemed exhausted. It’s coming down a bit after all the upward momentum in the past few days. Traders are looking ahead to next year, when supply conditions will improve. Even the correlation between the weak dollar and higher crude prices doesn’t seem as tight today,” said Phil Flynn of PFGBest Research in Chicago.

“But, if the dollar continues to fall, we will see a bigger support,” he added.

Reporting by Robert Gibbons;editing by Sofina Mirza-Reid