Oil falls near $88 despite US crude supply plunge

[December 16, 2010]  SINGAPORE (AP) -- Oil prices fell to near $88 a barrel Thursday in Asia despite a plunge in U.S. crude supplies that suggested demand may be recovering.

Benchmark oil for January delivery was down 50 cents to $88.12 a barrel by late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose 34 cents to settle at $88.62 on Wednesday.

The Energy Department's Energy Information Administration said Wednesday that crude inventories fell 9.9 million barrels last week, the largest drop since 2002. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had forecast a drop of 3 million barrels.

"The recent tightening in market conditions has been more significant than we had expected, leading us to now anticipate a steeper rise in oil prices over 2011," National Australia Bank said in a report.

Crude traders will also be looking closely at the latest figures for U.S. housing starts and jobless claims later Wednesday for clues about the strength of the economic recovery.

Most global crude demand growth this year came from emerging economies, led by China. Some analysts expect Chinese demand for commodities will likely fade in coming years as the economy shifts toward services.

"Rebalancing of the economy over the next decade is likely to see commodity-intensity drop sharply and with it commodity demand," Capital Economics said in a report. "The prices of industrial commodities may already have risen to unsustainable levels."

In other Nymex trading in January contracts, heating oil fell 0.2 cent to $2.48 a gallon, gasoline futures added 0.3 cent to $2.31 a gallon and natural gas gained 0.3 cent to $4.23 per 1,000 cubic feet.

In London, Brent crude fell 18 cents to $92.02 a barrel on the ICE Futures exchange.

[Associated Press; By ALEX KENNEDY]

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