Oil slips from 25-month highs as equities fall

NEW YORK (Reuters) - Oil fell from 25-month highs struck early Thursday as gains in the dollar and the weaker stock market offset strong Chinese demand data.

A motorist pumps petrol at a gas station in Kuala Lumpur July 15, 2010. REUTERS/Bazuki Muhammad

U.S. crude topped $88 a barrel after data from China showing demand leaping to a record in October, before an outlook issued by Cisco Systems Inc CSCO.O that economic softness will hurt corporate profits dragged down equities and weighed on oil. .N

U.S. crude for December delivery settled unchanged at $87.81 a barrel in a choppy session that early in the day saw prices touch $88.63, highest intraday since October 9, 2008. Volume was below the 30-day average at around 658,000 lots, according to preliminary Reuters data.

ICE December Brent fell 15 cents to $88.81, after climbing to $89.70, highest since October 3, 2008.

“Crude futures are choppy, with volume light due to the Veterans Day holiday. Traders are looking at the stock market, where prices are down, but earlier data from China and an OPEC demand forecast are constructive,” said Andy Lebow, broker at MF Global in New York.

Pressure also came from a rising dollar, although analysts noted that the greenback’s impact on oil had somewhat ebbed in recent days as oil investors shifted their focus to tightening fundamentals.

In late trading, the greenback rose 0.63 percent against a basket of currencies.

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U.S. crude had gained in seven out of eight previous sessions, rising $6.38, or 7.8 percent, in that period. But a key technical indicator appeared to be weighing on the market.

Support on Wednesday came from government data showing U.S. crude stockpiles fell unexpectedly last week while a drop in refined product supplies exceeded forecasts. <EIA/S>

“The market is starting to stall after a run-up in the past couple of weeks,” said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

“There are renewed concerns about euro-zone debt and worries that the U.S. fundamental picture may still be out of line to support a surge to $90,” McGillian added.

U.S. crude’s Relative Strength Index edged up to 67.74 at the close on Thursday, closing in on the 70 level that is usually interpreted as a signal the market is overbought and subject to a price correction.

The current rally has seen prices break above the $70-$85 range, partly on OPEC’s signals that it can tolerate higher oil prices and on a plan by the Federal Reserve to buy $600 billion in Treasury bonds to help speed economic growth.


China’s industrial production grew 13.1 percent in October from a year earlier, sending oil usage in the world’s second biggest consumer to a record 8.92 million barrels per day (bpd).

Chinese demand was fueled mainly by a record refinery throughput of 8.72 million bpd, up 12.2 percent from a year earlier, as reported by the National Statistical Bureau on Thursday.

The Organization of the Petroleum Exporting Countries raised its forecast of global oil demand next year by about 310,000 bpd to 86.95 million bpd, and increased its estimate of consumption this year by around 190,000 bpd, to 85.78 million bpd.

Additional reporting by Robert Gibbons in New York; Emma Farge in London; Isabel Coles and Alejandro Barbajosa in Singapore; editing by Jim Marshall