* Prices fall for second day after hitting 27-mth high
* Technicals show U.S. crude price support above $88/bbl
* Coming Up: EIA weekly U.S. oil inventory report; 1530 GMT
(Updates prices, jobs data, contango graphic)
By Emma Farge
LONDON, Jan 5 (Reuters) - Oil prices fell further from
27-month highs on Wednesday as a strong dollar sapped investor
appetite for commodities, despite signs of tighter oil supply
fundamentals in top consumer the United States.
Oil staged a sharp rally in late December, helping to make
commodities the top performing asset class in 2010, but prices
have since retreated as part of a wider commodities sell-off.
The U.S. dollar index rose by nearly 1 percent on Wednesday,
making oil more expensive for non-dollar buyers and pushing U.S.
crude futures <CLc1> to an intra-day trough of $88.16 a barrel
and the lowest since Dec. 20. <.DXY>
Oil prices pared losses after U.S. jobs data showed the
number of planned layoffs fell in December. By 1339 GMT, they
were down 56 cents at $88.82 a barrel and around 4 percent below
the 27-month peak hit in early January. []
ICE Brent for February <LC0c1> fell 53 cents to $93 a barrel
but was still well supported relative to the U.S. crude
benchmark and held a near $4 premium.
"The price had gone up too high. There was quite a flow of
funds coming in, and people have been taking profits. It's not
unexpected -- we've got all that spare capacity upstream and
downstream and still high stocks even though there have been
some draws," said Roy Jordan, an analyst at Facts Global Energy.
Losses on Wednesday came despite data late in the previous
session showing a much larger-than-expected 7.5 million barrel
drop in crude inventories in the final week of 2010, according
to industry group American Petroleum Institute.
Still, U.S. crude futures for February held around $1 below
March prices in a structure known as contango, which is
associated with comfortable supplies.
Data from government statistics body U.S. Energy Information
Administration, generally seen as a more authoritative source,
are due to follow on Wednesday at 1530 GMT. []
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a graphic on US crude stocks and oil price, see:
http://r.reuters.com/keg64r
For a graphic on the WTI and Brent curves, see:
http://link.reuters.com/deb84r
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Analysts at MF Global saw the chance of a deeper correction
for oil, although technical analysts pointed to immediate price
support at $88-$89 a barrel. []
"Markets could see somewhat more weakness on Wednesday as
the current correction may have more room to run," said Edward
Meir at MF Global, adding that this week's selloff resembles a
similar trend in early 2010, when prices fell over 10 percent in
January.
One fundamental factor other than falling stocks that could
help limit downside on oil prices is strong demand due to cold
weather in the northern hemisphere, according to JBC Energy.
This month could be the coldest January for top oil consumer
the United States since the 1980s, according to Accuweather.com
[]
In other markets, world stocks as measured by MSCI
<.MIWD00000PUS> fell by over half a percent on Wednesday as
early losses in European shares weighed.
European industrial orders rose by 14.8 percent in October
from the previous year but less than a forecast 17 percent rise
in a Reuters poll. []
(Additional reporting by Alejandro Barbajosa in Singapore;
editing by Jane Baird)
