* Dollar bounces, euro surrenders gain, pulling oil back
* Uncertainty about tax compromise passage weighs on oil
* European/U.S. cold weather supportive to oil
* Coming up: EIA oil data, 10:30 a.m. EST Wednesday
(Updates with API oil inventory report, market reaction,
paragraphs 17-20)
By Robert Gibbons
NEW YORK, Dec 7 (Reuters) - Oil fell on Tuesday after four
straight higher finishes as the dollar bounced from its lows
and cautious investors took profits after the dollar's early
slip and cold weather in Europe and the United States had
pushed oil to a 26-month peak above $90 a barrel.
Uncertainty about passage of a deal struck by U.S.
President Barack Obama with Republicans to extend Bush-era tax
cuts pressured oil prices after news of the plan earlier helped
boost U.S. equities and oil.
The dollar surged against the yen and the dollar index
<.DXY> turned positive as the proposed tax cut extension
triggered higher U.S. Treasury yields. [] []
U.S. crude for January delivery <CLc1> fell 69 cents to
settle at $88.69 a barrel after rising as high as $90.76, the
highest intraday front-month price since October 2008.
The day's peak was just above the top of the $70-$90 a
barrel price range that Saudi Arabia and OPEC last month said
was acceptable to consumers. OPEC meets on Dec. 11, with oil
ministers expected to keep existing supply targets.
U.S. crude trading volume continued to rebound from the
late-November holiday slump, with volume above 912,000 lots on
Tuesday, 44 percent above the 30-day average, according to
Reuters data.
ICE Brent crude for <LCOc1> fell 6 cents to settle at
$91.39 a barrel, falling from an earlier $92.86 peak.
"Crude pushed above $90, but lost momentum and the more
nervous longs probably took a little profit," said Gene
McGillian, analyst at Tradition Energy in Stamford,
Connecticut.
"The fundamentals are still not spectacular and that may
make investors cautious. But if equities stay strong and the
dollar weak, that may attract buyers back into crude."
The U.S. dollar benefited from the higher Treasury yields
even amid concerns about the size of the U.S. debt and the euro
pared its gains versus the dollar as concerns about euro zone
debt persisted.
Oil and dollar-denominated commodities often move inversely
to the dollar. A stronger dollar typically pressures oil prices
as it raises the value of greenbacks paid to producers while
making it more expensive for consumers using other currencies.
Uncertainty about the tax-cut deal negotiated by President
Obama emerged as top House of Representative Democrats voiced
concern about plan components and Republican Senator George
Voinovich said he would not support the tax compromise.
[] [] []
"I think the tax deal was part of the rally early, but if
questions remain about passage of the deal they could cause
traders to give up on the long side," said Tom Bentz, broker at
BNP Paribas Commodity Futures Inc in New York.
Also stoking investor caution was a report in an official
newspaper saying that China's central bank may raise interest
rates this weekend in another move to cool rising inflation.
[]
COLD WEATHER LIFT
Temperatures in Europe's main heating hub of the northwest
were expected to stay below seasonal norms over the next 10
days, according to private forecaster DTN Meteorlogix.
[]
Weather forecasts show the coldest weather so far for the
2010-2011 winter expected early next week in the U.S.
Northeast, the nation's biggest heating oil consuming region.
[]
INVENTORY REPORTS
The American Petroleum Institute industry group said late
on Tuesday that U.S. crude oil stocks fell 7.3 million barrels
in the week to Dec. 3. The drop was much steeper than expected
and came despite rising crude oil imports as refiners ramped up
utilization and refined products stockpiles rose.
[]
The API said gasoline stocks rose 4.8 million barrels and
distillate stocks rose 1.7 million barrels.
Crude oil futures pared losses slightly after the report,
but were still off more than $1 in post-settlement trading.
Crude oil stocks were expected to be down 1.3 million
barrels, distillates by 500,000 barrels and gasoline stocks up
only 500,000 barrels, a Reuters analyst survey ahead of the API
report showed. []
The U.S. Energy Information administration will release the
government's inventory report on Wednesday at 10:30 a.m. EST
(1530 GMT).
(Additional reporting by Gene Ramos in New York, Emma Farge in
London and Alejandro Barbajosa in Singapore; Editing by David
Gregorio)
