Oil slides over three percent

Oil prices plunged more than 3 percent on Tuesday, falling from a 27-month high, as profit-taking struck the commodities complex following a series of peaks over the thin holiday trading period. Traders said the abrupt selling across energy, metal and agricultural markets reflected a correction to the rally that had capped 2010, rather than a sudden reversal of the optimism that made commodities the top asset class last year.
Trading volume recovered to its highest levels since mid-December. "We had an end-of-year run-up and now we are getting the beginning-of-the year sell-off," said Stephen Schork, president of the Schork Group in Villanova, Pennsylvania. Additional pressure came from a rebound in the dollar, which turned positive on an improving US economic outlook.
US crude oil for February delivery fell $2.83, or 3.08 percent, to $88.72 a barrel at 12:42 pm EST (1742 GMT), sliding from an intraday peak of $92.07. It was the biggest one-day percentage decline since mid-November. Total US crude futures trading volume rebounded sharply, after being thinned by the holidays, and was above 542,000 lots during the noon hour in New York, already closing in on the 30-day average of 543,358 lots.
In London, ICE Brent crude for February fell $1.93 to $92.91 a barrel, well off an early $95.74 peak. Brent crude's premium to US benchmark West Texas Intermediate crude rose to $4 a barrel intraday Tuesday, the highest in two weeks, as US crude prices slid more than 2 percent.
Copper and gold both fell more than 2 percent, while cocoa and sugar fell by around 3 percent, in the broadest retreat in commodity markets since a mid-November rout. US stock indexes fell as worries that rising food costs will hit supermarket profits hurt consumer stocks and dented optimism about the economic outlook. The retreat by US oil futures came after they settled at a 27-month peak above $91 a barrel on Monday as US and European manufacturing data suggested improving economic growth that could bolster oil demand.
"Built into pricing for commodities was a premium for flight to safety," said John Kilduff, a partner at Again Capital LLC in New York. "With the economic recovery now in plain view and equities coming back into favour, that vestige of safety is losing its appeal. It's happening with oil and there's a similar free fall in precious metals."
Investors will be eyeing the Federal Open Market Committee minutes from its December 14 meeting for clues on the US central bank's outlook on the economy and intentions about keeping intact recent initiatives to stimulate a faltering economic recovery. The Fed minutes were due to be released at 2 pm EST (1900 GMT).
Oil investors awaited weekly oil inventory reports, with US crude oil stocks expected to have fallen by 1.7 million barrels last week as refiners continued to curb imports for end-year tax considerations, a preliminary Reuters survey of analysts showed on Monday.
Distillate and gasoline stockpiles were expected to be little changed, up only 300,000 barrels. The industry group American Petroleum Institute's inventory report was set for release on Tuesday at 4:30 pm EST (2130 GMT). The US Energy Information Administration's report will follow with government statistics at 10:30 am EST (1530 GMT) on Wednesday.