Oil hovers below $86 ahead of US supply reports

[December 01, 2010]  SINGAPORE (AP) -- Oil prices hovered below $86 a barrel Tuesday in Asia as traders looked to U.S. supply reports for clues about the strength of demand for crude.

Benchmark oil for January delivery was down 8 cents to $85.65 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose $1.97 to settle at $85.73 on Monday.

Crude inventories likely fell 1.5 million barrels last week, according to analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos. The American Petroleum Institute plans to announce its inventory numbers later Tuesday while the Energy Department's Energy Information Administration reports its weekly supply data Wednesday.

"We still see further upside for oil prices as a result of extended U.S. liquidity, strong emerging market demand, and a nascent fall in U.S. inventories albeit from high levels," Citigroup said in a report.

Citi said it expects oil prices to average $88 during the next three months and $93 between six and 12 months from now.

Crude prices rose Monday despite the dollar gaining against the euro. Oil normally falls as the dollar strengthens since crude becomes more expensive for investors with other currencies.

"Oil is becoming a safe haven," Cameron Hanover said in a report. "There was a time when oil prices reacted to what the euro was doing. Now, traders seem to be turning to oil when they can't turn to the euro. That's new."

In other Nymex trading in December contracts, heating oil fell 0.8 cent to $2.35 a gallon and gasoline dropped 1.2 cents at $2.27 a gallon. Natural gas added 0.5 cent to $4.22 per 1,000 cubic feet.

In London, Brent crude rose 6 cents to $87.40 a barrel on the ICE Futures exchange.

[Associated Press; By ALEX KENNEDY]

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