* Crude prices top $87, near highest since October 2008
* Rapid rise leaves crude markets over-bought, charts show
* U.S. gasoline stocks dropped 3 million bbls last week -API
* Coming Up: U.S. crude inventory report from EIA; 1430 GMT
(Updates prices, detail)
By Christopher Johnson
LONDON, April 7 (Reuters) - Oil slipped back from 18-month
highs around $87 on Wednesday, taking a breath after two weeks
of gains as the dollar strengthened against other currencies.
Reports of a larger-than-expected drop in U.S. gasoline
stockpiles helped bolster the market, suggesting fuel demand is
rebounding as the economic outlook improves in the world's
biggest oil consumer.
But technical charts indicated oil might be due for a period
of consolidation after a rise of around 9 percent in seven
trading days that left the 14-day relative-strength indexes
(RSIs) around 70, suggesting markets were modestly overbought.
U.S. light crude futures for May <CLc1> were 33 cents lower
at $86.51 by 1000 GMT, down from Tuesday's intraday peak of
$87.09, the highest since October 2008. London ICE Brent <LCOc1>
fell 17 cents to $85.98.
"We think the current rally in crude, although still looking
formidable on the charts, is getting long in the tooth, and due
for a modest pullback, especially if the dollar regains its
strength in the wake of continued eurozone jitters," said Edward
Meir, senior commodities analysts at brokers MF Global.
"We suspect that commodities will have a hard time avoiding
the 'blow-back' that a stronger dollar would generate."
10TH STRAIGHT GAIN
The dollar was slightly stronger against a basket of
currencies on Wednesday. <.DXY> []
Oil and commodities often move inversely to the dollar as
they are priced in the U.S. currency on international markets.
Gasoline inventories in the U.S. fell a larger-than-expected
3 million barrels last week, the industry-funded American
Petroleum Institute (API) said on Tuesday.
U.S. crude oil stockpiles increased less than expected,
according to the API, adding 1.1 million barrels in the week
ended April 2. []
But inventories of distillates, comprising heating oil and
diesel, rose unexpectedly as refineries processed more crude,
the API said.
Stock figures from the U.S. government's Energy Information
Administration (EIA), generally considered more reliable than
industry data, are due at 10:30 a.m. EDT (1430 GMT).
Crude inventories were expected to have climbed 1.8 million
barrels for their 10th consecutive weekly gain, a Reuters survey
showed, while gasoline supplies probably fell 800,000 barrels.
Tuesday's release of minutes from the Fed's last policy
meeting indicated the U.S. central bank could maintain ultra-low
interest rates for even longer than investors have anticipated
if the economic outlook worsens or inflation drops, boosting
confidence that demand for commodities will continue to grow.
[]
European shares edged lower on Wednesday after hitting an
18-month closing high on Tuesday, with gains capped by doubts
about Greece's ability to emerge from crisis. []
Oil prices traded in a range of less than $15 and below $84
a barrel in the first quarter, surpassing that level on April 1
for the first time since 2008.
Members of the Organization of the Petroleum Exporting
Countries have said they favour prices between $70 and $80.
For a Reuters column on the challenges that OPEC may face as
prices surpass that level, click []
(Additional reporting by Alejandro Barbajosa; editing by Amanda
Cooper)
