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Oil falls below $88 in Asia on profit-taking

Oil prices fell on Wednesday in Asia as traders locked in profits after crude rose above $90 a barrel for the first time in more than two years.

business Updated: Dec 08, 2010 11:11 IST

Oil prices fell on Wednesday in Asia as traders locked in profits after crude rose above $90 a barrel for the first time in more than two years.

Benchmark oil for January delivery was down 89 cents to $87.80 a barrel at midday Kuala Lumpur time in electronic trading on the New York Mercantile Exchange.

The contract hit $90.76 on Tuesday, the highest price since Oct. 8, 2008 before pulling back to settle at $88.69, down 69 cents. "It is not surprising. It is primarily profit-taking after crude breached the $90 level in New York," said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore.

The rally on Tuesday came as President Obama and Republican leaders hammered out an agreement to extend Bush-era tax cuts. A cold snap also swept through Europe and the US, lifting demand for fuel. Some analysts now predict that oil will hit $100 per barrel sometime in 2011. They point to rising demand from China and other emerging economies. OPEC countries can crank up production to meet that demand now, but their ability to do that is expected to decline over the next few years.

Shum, however, said the $90 level wasn't sustainable for now amid persistent concerns about the spread of Europe's debt crisis to Portugal and Spain. This boosts the dollar and depresses the oil price as it makes the commodity more expensive for investors holding other currencies.

Fears that China may raise interest rates are also dampening the oil market, which is likely to trade between $85 and $90 in the near term, Shum said.

Traders will seek more clues on the strength of crude demand from US government supply figures later on Wednesday. The American Petroleum Institute's report on Tuesday was mixed, showing a drawdown in crude oil stocks but a rise in distillate and gasoline inventories.

In other Nymex trading in January contracts, heating oil fell 1.8 cents to $2.45 a gallon, gasoline futures gave up 2.3 cents to $2.29 a gallon and natural gas lost 2 cents at $4.38 per 1,000 cubic feet. In London, Brent crude fell $1.09 to $90.30 a barrel on the ICE Futures exchange.