* After series of 27-month highs, oil back below $90
* Sell-off after recent rally pressures commodities
* Coming up: API oil data report, Tuesday, 4:30 p.m. EST
(Recasts, updates prices, market activity to settlement)
By Robert Gibbons
NEW YORK, Jan 4 (Reuters) - Oil prices slid more than 2
percent on Tuesday, retreating from a 27-month high and
dropping below $90 a barrel, as profit-taking struck the
commodities complex following a rally over the thin holiday
trading period.
Investors said abrupt selling across energy, metal and
agricultural markets reflected a correction to the rally that
capped 2010, rather than a sudden reversal of the optimism that
made commodities the top asset class last year.
"Today's sharp price pullback appeared to represent a raft
of profit taking in conjunction with a broad based exit of
length off of the overall commodity base," Jim Ritterbusch,
president at Ritterbusch & Associates in Galena, Illinois, said
in a note.
Some additional pressure came from a rebound by the dollar,
which turned positive on an improving U.S. economic outlook.
(Graphic: http://r.reuters.com/ces64r)
Traders also noted that even as forecasters predicted U.S.
crude oil inventories fell last week [], there was an
expectation that stockpiles will rebound in the new year and
pressure prices after companies drew down stored supplies for
tax reasons at the tail end of 2010.
U.S. crude oil for February delivery <CLc1> fell $2.17, or
2.37 percent, to settle at $89.38 a barrel, off an early peak
of $92.07, but settling above the $88.36 intraday low.
Total U.S. crude futures trading volume rebounded from the
thin holiday volumes and was above 746,000 lots with less than
two hours of post-settlement trading left, already surpassing
the 250-day average of 670,799 lots.
In London, ICE Brent crude for February <LCOc1> fell $1.31
to settle at $93.53, well off an early $95.74 peak.
Brent crude's premium to U.S. benchmark West Texas
Intermediate crude <CL-LCO1=R> rose to as much as $4.27 a
barrel intraday Tuesday, the highest since September, with a
tight nearby supply picture and expectations for lower Nigerian
exports [] cited as factors by brokers.
Prices pared losses after minutes from the December Federal
Open Market Committee said the Federal Reserve would stick to
its $600 billion bond-buying program. [].
"We pared losses after the minutes. The Fed's intentions
about its bond buying was was definitely something traders were
looking at," said Richard Ilczyszyn, senior market strategist,
at Lind-Waldock in Chicago.
The Fed's stimulative policies are viewed as bearish for
the U.S. dollar. A weaker dollar typically lifts prices of
dollar-denominated oil and other commodities because it lowers
the value of greenbacks paid producers and can make them less
expensive for consumers with other currencies.
Copper, gold, cocoa and sugar all fell sharply. The
Reuters-Jefferies CRB index <.CRB> dropped 2 percent in its
sharpest one-day fall since mid-November. []
U.S. stock market indexes eased as resource shares were hit
by the commodities price slump and concerns that rising food
costs will hit supermarket profits hurt consumer stocks. []
"Built into pricing for commodities was a premium for
flight to safety," said John Kilduff, a partner at Again
Capital LLC in New York.
"With the economic recovery now in plain view and equities
coming back into favor, that vestige of safety is losing its
appeal. It's happening with oil and there's a similar free fall
in precious metals."
The retreat by U.S. oil futures came after they settled at
a 27-month peak above $91 a barrel on Monday as U.S. and
European manufacturing data suggested improving economic growth
that could bolster oil demand.
U.S. INVENTORIES
Ahead of weekly oil inventory reports, U.S. crude oil
stocks were expected to have fallen by 1.8 million barrels last
week, an expanded Reuters survey of analysts showed. []
Distillate and gasoline stocks were seen up slightly.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on U.S. crude stocks and price
http://r.reuters.com/keg64r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The industry group American Petroleum Institute's inventory
report was set for release on Tuesday at 4:30 p.m. EST (2130
GMT). The U.S. Energy Information Administration's report will
follow on Wednesday at 10:30 a.m. EST (1530 GMT).
(Additional reporting by the New York Energy Desk, Dmitry
Zhdannikov in London, Alejandro Barbajosa in Singapore; Editing
by David Gregorio)
