Oil falls below $89 despite US crude supplies drop

[January 05, 2011]  SINGAPORE (AP) -- Oil prices dropped below $89 a barrel Wednesday in Asia, extending losses from the previous session despite signs U.S. crude demand may be improving.

Benchmark oil for February delivery fell 48 cents to $88.90 a barrel late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract lost $2.17 to settle at $89.38 on Tuesday.

The American Petroleum Institute said late Tuesday that crude inventories fell 7.5 million barrels last week while analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had forecast a drop of 1.6 million barrels. Inventories of gasoline rose 5.6 million barrels and distillates added 2.2 million barrels, the API said.

Crude supplies have fallen for five weeks, but are still above levels from the previous year. The Energy Department's Energy Information Administration reports its weekly supply data later Wednesday.

Some analysts predict slower global economic growth and still-high inventories will keep crude from shooting much above $100 this year.

"We don't think that major oil price spikes are likely in 2011 because the oil market should continue to be well supplied," said Eliane Tanner, commodity strategist at Bank Sarasin. "Since we also expect global economic growth to weaken somewhat in 2011, growth in demand should be slightly more moderate."

Crude will likely trade between $80 and $100 this year, Tanner said.

In other Nymex trading in February contracts, heating oil slid 1.2 cents to $2.49 a gallon while gasoline futures skidded 2.5 cents to $2.39 per gallon. February natural gas futures fell 6.5 cents to $4.60 per 1,000 cubic feet.

In London, Brent crude was down 39 cents to $93.14 a barrel on the ICE Futures exchange.

[Associated Press; By ALEX KENNEDY]

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