Oil hovers around $92 at 27-month peak
Oil held near its highest prices in more than two years in volatile trade on Tuesday, due to accelerating manufacturing activity in developed economies and expectations that US crude inventories will keep falling.
US crude for February was down 18 cents to $91.37 a barrel at 1424 GMT on Tuesday after earlier hitting a peak of $92.58, the highest intraday price since early October 2008.
ICE Brent was up 32 cents at $95.15, having topped $96 on Monday for the first time since 2008.
"We expect oil demand to remain strong in 2011. Growth rates will slow down, but in terms of absolute levels we still expect a record year," said Amrita Sen of Barclays Capital, adding that oil prices might hit $100 a barrel before April.
"We also expect concerns about non-OPEC supplies to resurface this year," she added.
Prices had rallied on Monday on accelerating manufacturing activity in industrial economies and on icy weather and were up in early trade on Tuesday although they began to slide after 1330 GMT as the dollar strengthened against other currencies.
"With the EU showing signs of inflation and slower growth, the dollar is taking its toll on the oil market," said Carl Larry from Oil Outlooks.
"...And we are seeing more oil companies trying to take advantage here and hedge future production. They see the stall up at $92 and think this is a good opportunity to put some hedges in," he added.
Manufacturing in the United States and Europe accelerated in December, while growth in China and India slowed to more sustainable levels in another boost for the global economic outlook.
On Tuesday, a report showed that British manufacturing activity expanded at its fastest pace in over 16 years in December, above expectations.
"It appears easily possible that the magical three-digit threshold ($100 per barrel) falls in the coming weeks," analysts at JBC Energy broker said in a note on Tuesday.
Crude oil inventories in the United States, the world's top consumer, probably fell for the fifth time in a row last week, down by 1.7 million barrels, a Reuters poll showed, while stockpiles of gasoline and distillates probably rose.
Refiners continued to use up more of their stored crude supplies while holding off on imports to lower their year-end taxes, analysts said.
Industry group American Petroleum Institute (API) will release its inventory report on Tuesday at 2130 GMT, while the US Energy Information Administration will follow with government statistics at 1530 GMT on Wednesday.
"Increasing demand for heating oil is helping to reduce the inventory overhang," said Credit Suisse analysts including Stefan Graber.
"However, this is likely to be temporary as heating oil demand usually peaks around mid-January. While the short-term technical trend and momentum indicators remain positive, we think that ample OPEC spare production capacity is likely to cap the upside."
In other markets, world stocks as measured by MSCI were up nearly half a percent on the day, with the emerging market sub-index gaining 0.19 percent, lifted by the optimism about the state of the world economy.
The next big test for the US economy comes on Friday when the government will publish its December jobs report.
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