Oil stays near 26-month highs

Oil fell on Wednesday but stayed near recent 26-month highs, pulled down in light trade by profit-taking as markets awaited the release of US inventory data. Analysts forecast a drawdown in crude oil inventories for the fourth consecutive period last week as refiners reduced imports for year-end tax considerations.
US crude for February delivery edged down 28 cents to $91.21 a barrel at 2:13 pm EST (19:13 GMT), while ICE Brent crude fell 19 cents to $94.19 a barrel. "We're seeing light long liquidation before the end of the year, a day after crude showed amazing resilience, switching courses in the middle of the stream," said Peter Beutel, president of Cameron Hanover.
US crude traded as low as $90.80 earlier on Wednesday but edged higher after the dollar fell to session lows versus the yen and euro as US bond yields dropped following a solid auction of seven-year Treasury notes. Crude volumes on the New York Mercantile Exchange remained thin with many players out due to the holidays. About 176,000 contracts had traded by 2:15 pm EST, well below the 576,000 contracts traded on average over the past 30 days..
"The dollar's fall lent support to crude but there was no huge move since there aren't a lot of people in. This is the effect of light, choppy and directionless trade before the holidays," said Mark Waggoner, president of Excel Futures Inc, based in Oregon. Crude inventories in the world's biggest economy were seen down 2.6 million barrels in the week to December 24, while gasoline stocks were seen up 1.4 million barrels, according to a Reuters poll of 15 analysts.
US oil prices hit a 26-month high at $91.88 on Monday after a major blizzard hit Northeastern United States and similarly cold temperatures on the other side of the Atlantic pushed up demand. The gains, however, were later tempered by a Chinese rate increase that threatened to slow demand in the world's second biggest oil consumer.
"The market seemed exhausted - it's coming down a bit after all the upward momentum in the past few days. Traders are looking ahead to next year when supply conditions will improve. Even the correlation between the weak dollar and higher crude prices doesn't seem as tight today," said Phil Flynn with PFGBest Research in Chicago.
"But if the dollar continues to fall, we will see a bigger support," he added. The American Petroleum Institute will report its weekly inventory data later Wednesday, delayed a day due to the Christmas holiday. The US Energy Information Administration (EIA) will issue its weekly report on Thursday, likewise a day later than usual.