By PABLO GORONDI, Associated Press
A stronger dollar pushed oil prices down toward $88 a barrel Wednesday, extending losses from the previous session despite signs U.S. crude demand may be rising.
By early afternoon in Europe, benchmark oil for February delivery was down $1.20 to $88.18 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost $2.17 to settle at $89.38 on Tuesday.
Improving U.S. economic indicators helped the dollar make significant gains, turning crude more expensive for investors holding other currencies.
The euro fell to $1.3231 from $1.3305 late Tuesday in New York, while the British pound retreated to $1.5556 from $1.5583.
The American Petroleum Institute said late Tuesday that crude inventories fell 7.5 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had forecast a drop of 1.6 million barrels. Inventories of gasoline rose 5.6 million barrels and distillates added 2.2 million barrels, the API said.
Crude supplies have fallen for five weeks, but are still above levels from the previous year. The Energy Department's Energy Information Administration reports its weekly supply data later Wednesday.
"The retreat in prices since (Tuesday) is likely to be due to profit-taking, which can be explained by the previous excessive market optimism of market players," said a report from Commerzbank in Frankfurt. "Even so, we do not believe that this is the start of a longer correction."
Some analysts predict slower global economic growth and still-high inventories will keep crude from shooting much above $100 this year.
"We don't think that major oil price spikes are likely in 2011 because the oil market should continue to be well supplied," said Eliane Tanner, commodity strategist at Bank Sarasin. "Since we also expect global economic growth to weaken somewhat in 2011, growth in demand should be slightly more moderate."
Crude will likely trade between $80 and $100 this year, Tanner said.
In other Nymex trading in February contracts, heating oil slid 3.09 cents to $2.4756 a gallon while gasoline futures skidded 3.6 cents to $2.378 per gallon. February natural gas futures fell 7 cents to $4.599 per 1,000 cubic feet.
In London, Brent crude was down $1.09 to $92.44 a barrel on the ICE Futures exchange.
Associated Press writer Alex Kennedy in Singapore contributed to this report.
(Copyright 2011 by The Associated Press. All Rights Reserved.)