* Prices fall for second day after hitting 27-month high
* Technicals show U.S. crude price support above $88/bbl
* EIA data shows 4.16 million barrel drop in crude stocks
(Updates prices, adds EIA data)
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 more than 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 stronger-than-expected U.S.
jobs data for December.[]
By 1536 GMT, U.S. crude was down 88 cents at $88.50 a barrel
and around 4 percent below the 27-month peak hit in early
January.
ICE Brent for February <LC0c1> fell 44 cents to $93.09 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 a more than 4 million
barrel drop in U.S. crude oil inventories in the final week of
2010, according to the Energy Information Administration (EIA).
[]
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.
The potential bullish impact of the EIA data was also
tempered by bigger-than-expected builds in distillate and
gasoline stocks, analysts said.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
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 more than 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 nearly 2 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 Anthony Barker)
