* U.S. jobless claims rise, retail sales disappoints
* Brent premium over U.S. WTI rises above $6/bbl
* Traders watching closely for fund rebalancing this week
* Coming up: Friday's U.S. employment report
(Updates prices, market activity, adds new byline, changes
dateline previously LONDON)
By Gene Ramos
NEW YORK, Jan 6 (Reuters) - Oil prices fell more than 2
percent on Thursday to below $89 a barrel as a stronger dollar
and weaker U.S. equities deterred buyers.
Oil markets weakened as Wall Street dipped on disappointing
retail sales, placing more caution on oil investors anxious to
see if recent positive economic reports could translate into
more consumer demand.
Weekly jobless benefit claims rose more than expected,
denting optimism sparked on Tuesday by data showing
unexpectedly big gains in private sector jobs.
U.S. crude for February delivery <CLc1> was down $1.76 at
$88.54 a barrel at 12:50 p.m. EST (1750 GMT) in heavy volume
for a second straight day. In London, Brent crude for February
<LCOc1> was down $1.20 at $94.30.
Brent's premium over U.S. crude has blown up to as much as
$6.55, the highest since May 13, 2010 and threatening to
further soar toward a 10-month high of $8.73 reached in
February 2009.
Brent's strength has been spurred by continued strong Asian
demand while U.S. crude has been pressured by an extended build
in stockpiles at the key delivery hub in Cushing, Oklahoma,
despite national stocks having fallen in the last five
consecutive weeks.
Concerns about the Eurozone economy have undermined the
single European currency, which fell 1 percent to a five-week
low against the dollar on Thursday, as recent signs of the U.S.
recovery moving at a faster pace sparked fresh optimism.
By midday, the U.S. dollar was up 0.62 percent against a
basket of currencies. <.DXY>
"It's all about the dollar strength and if the dollar keeps
rising you could see more profit-taking up here at these
levels," said Richard Ilczyszyn senior market strategist at
Lind-Waldock in Chicago.
Dollar-denominated commodities become more or less
expensive for non-dollar buyers depending on the relative
strength of the U.S. currency.
U.S. claims for unemployment benefits rose more than
expected last week, adding to bearish sentiment, even though
the four-week average, considered a better gauge of underlying
labor trends, declined to a 2-1/2 year low. []
In the face of this, commodities and financial markets were
cautious ahead of Friday's U.S. employment report for December,
which is expected to show that nonfarm payrolls jumped 175,000
after November's small gain of just 39,000. []
Expectations of economic recovery and with it rising fuel
demand helped to drive U.S. oil to a 27-month high of $92.58 on
Tuesday, but in volatile trade, prices fell to a low of $87.85
on Thursday.
Analysts said there could be some price distortion this
week as the big investment indexes rebalance their crude
futures weightings. []
"The rebalancing period is well flagged and as such, some
of the recent moves in the market are likely to reflect the
anticipated rebalancing to some extent," said James Zhang, an
analyst at Standard Bank Commodities Research.
(Additional reporting by Robert Gibbons in New York, Claire
Milhench in London; Alejandro Barbajosa in Singapore; Editing
by Lisa Shumaker)
