Oil hovers below $89 amid US crude supply plunge

Oil prices hovered below $89S a barrel today in Asia after a plunge in U.S. crude supplies suggested demand may be recovering. Benchmark oil for January delivery was down 14 cents to $88.48 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange.

Oil prices hovered below $89S a barrel on Thursday in Asia after a plunge in U.S. crude supplies suggested demand may be recovering.

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Benchmark oil for January delivery was down 14 cents to $88.48 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose 34 cents to settle at $88.62 on Wednesday.

The Energy Department's Energy Information Administration said Wednesday that crude inventories fell 9.9 million barrels last week, the largest drop since 2002. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had forecast a drop of 3 million barrels.

"The recent tightening in market conditions has been more significant than we had expected, leading us to now anticipate a steeper rise in oil prices over 2011," National Australia Bank said in a report.

Crude traders will also be looking closely at the latest figures for U.S. housing starts and jobless claims later Wednesday for clues about the strength of the economic recovery.

In other Nymex trading in January contracts, heating oil rose 0.2 cent to $2.49 a gallon, gasoline futures added 0.4 cent to $2.31 a gallon and natural gas gained 0.9 cent to $4.23 per 1,000 cubic feet.