NEW YORK (Reuters) - Oil prices dropped more than 1 percent on Thursday, as investors squared their books ahead of the end of the year and economic worries persisted despite a slew of positive U.S. economic data.
Market players also reassessed Wednesday’s data showing that crude inventories posted their largest weekly drop in eight years, noting it was tax-driven and a one-off event that will give way to higher supplies in the coming weeks.
U.S. crude for January delivery settled 92 cents lower at $87.70 a barrel. The contract expires on Monday, adding to the day’s selling pressure.
Volume as of 4:30 p.m. EDT was around 586,000 lots, much lower than 675,898 30-day average, preliminary Reuters data showed.
U.S. oil prices hit a two-year high of $90.76 on December 7 and have since trended lower, hitting a low of $86.83 on Wednesday.
“I think book squaring is part of it. I have $87.94 as the mid-point of the monthly range. A close below that I think sets the table for further corrective weakness,” said Stephen Schork, president at the Schork Group in Villanova, Pennsylvania.
In London, ICE Brent for January expired 49 cents lower to settle at $91.71.
Brent’s premium against U.S. benchmark West Texas Intermediate rose further to a fresh seven-month high at $4.01 at the close, from $3.58 on Wednesday, the highest since May 14. The premium has risen as stocks at the U.S.-traded oil delivery hub in Cushing, Oklahoma, rose nearly 1 million barrels last week, extending increases to a fifth week.
The dollar rose on a series of positive U.S. economic data, but later came under some pressure after the Democratic-led House of Representatives delayed debate and votes on President Barack Obama’s tax cut bill, which some economists have said may help improve the pace of recovery.
The euro steadied but remained vulnerable to more selling after an agreement by European Union leaders to set up a permanent crisis management mechanism failed to calm fears about the region’s spreading debt crisis.
U.S. economic reports showed jobless insurance claims fell for a second week, factory activity in the Mid-Atlantic region surged this month at its quickest pace in more than 5-1/2 years and housing starts rose in November.
U.S. heating oil futures edged down, with the January contract ending 0.72 cent lower at $2.4763 a gallon in a delayed reaction to Wednesday’s government data showing a surprise build last week in distillate stocks, which include heating oil and diesel fuel, analysts said.
Temperatures will warm up slightly in the next two weeks in the top heating oil market of the U.S. Northeast, but December was on track to be the ninth coldest since 1950 in the region.
The January heating oil crack spread, the margin for processing crude into fuel, closed at $16.30 a barrel, the highest since February 12, 2009, when it ended at $21.54.
The U.S. Commodity Futures Trading Commission, the top commodities regulator, held off on moving forward with its most aggressive measures yet to prevent speculators from distorting commodity markets, with its chief saying the agency needed more time to develop the controversial proposals.
Additional reporting by Robert Gibbons in New York; Una Galani in London; Rebakah Kebede in Perth, Australia; Editing by David Gregorio