* EIA: U.S. fuel stocks rise, crude supplies fall
* U.S. tax cut extension plan edges forward
* China interest rates, OPEC meeting in focus
(Recasts, adds new byline, changes dateline, previously
LONDON)
By Gene Ramos
NEW YORK, Dec 8 (Reuters) - Oil prices slid for a second
day on Wednesday as unexpectedly large increases in U.S. fuel
inventories and a stronger dollar sparked selling in crude,
which hit a 26-month high early in the previous session.
Prospects that U.S. President Barack Obama would push
through a tax cut extension deal helped limit the day's losses
because more money in consumer pockets could boost energy
demand. The energy complex also drew support as wintry weather
hit the United States early, analysts said.
U.S. crude for January delivery <CLF1> fell 43 cents to
$88.26 a barrel at 12:35 p.m. EST (1735 GMT), well off
Tuesday's session high of $90.76, the highest since October,
2008. In London, ICE January Brent <LCOF1> dropped 49 cents to
$90.90 a barrel.
U.S. gasoline stockpiles rose by a more-than-expected 3.8
million barrels last week, the Energy Information
Administration's inventory data showed. []
Stocks of distillates, which include heating oil and diesel
fuel, rose by 2.2 million barrels, dashing forecasts for a
modest drawdown.
The fuel stocks increase overshadowed a
larger-than-expected drawdown of 3.8 million barrels in crude
inventories on the heels of a surprisingly big jump in refinery
utilization.
"We don't have the extremes of yesterday's API number, but
on the surface this is a bearish report showing lackluster
demand with the increase in products," said Mike Zarembski of
OptionsXpress in Chicago.
The industry group American Petroleum reported late on
Tuesday that domestic crude stocks jumped 7.3 million barrels
last week. Distillate stocks rose 1.7 million barrels while
gasoline supplies surged 4.8 million barrels, it said. []
TAX CUT DEAL, DOLLAR MOVEMENTS
The plan by Obama to broadly extend tax cuts edged forward
on Wednesday, despite opposition from his own Democrats and
fear in the bond markets of long-term damage to the economy.
[]
The plan has been interpreted variously, with many seeing
it as a further stimulus to the shaky economy, but it has also
unleashed fears about the longer-term rise in U.S. debt.
The dollar rose about 0.4 percent against a basket of
currencies <.DXY> as U.S. Treasury yields spiked in reaction to
the likelihood of the tax cut plan going forward. [] This
developed as currency traders put euro zone debt concerns on
the back burner, focusing instead on U.S. economic prospects.
Recent U.S. economic data on retail sales and growth in the
service sector signalled that the recovery was taking hold,
although last week's data showing a jump to 9.8 percent in the
unemployment rate has tempered the growth outlook.
A stronger dollar tends to weigh on the price of oil and
other dollar-denominated commodities.
Oil's downward trend could persist if China proceeded with
a speculated rise in interest rates to cool down its overheated
economic growth.
"For the holiday period the main risk will come from China
as the odds for an interest rate hike are increasing,:" said
Olivier Jakob from Petromartrix.
Ahead this week, the Organization of the Petroleum
Exporting Countries, source of more than a third of the world's
oil, meets on Dec. 11 in Ecuador. The group is not expected nto
change its production policy.
OPEC two years ago announced a record production cut as
recession hit prices and demand, but its compliance with the
agreement has declined because of recovering consumption and
rising prices.
(Additional reporting by Robert Gibbons in New York, Dmitry
Zhdannikov and Alex Lawler in London; Alejandro Barbajosa in
Singapore; Editing by David Gregorio)
