* Risk aversion rises as tax cuts reduce government revenue
* Technicals show U.S. crude to fall towards $87
[]
* Coming Up: U.S. EIA oil inventory report; 1530 GMT
By Alejandro Barbajosa
SINGAPORE, Dec 8 (Reuters) - Oil fell for a second day on
Wednesday, shedding as much as 1.2 percent, on concern about
the long-term health of the U.S. economy and after an industry
report showed a larger-than-expected increase in the country's
gasoline stockpiles.
A jump in U.S. bond yields boosted the dollar for a second
day after President Barack Obama proposed to extend Bush-era
tax cuts, prompting Moody's Investors Service to say U.S.
finances could suffer in the long run. []
The tax cuts would cap government revenue in the world's
largesst oil-consuming nation, at a time when the Federal
Reserve is pumping $600 billion into the economy to keep the
recovery on track.
The prospect of extended tax cuts also reduced appetite
for commodities from Tuesday, said Sydney-based CMC Markets
analyst David Taylor, prompting investors to cash in after
U.S. crude earlier jumped to a 26-month high near $91.
"There's a little less confidence about the outlook for
the U.S. economy, and the general view is that they can't
afford to extend the tax cuts. That is creating a bit of risk
aversion in the market," Taylor said.
U.S. crude for January <CLc1> fell $91 cents to $87.78 by
0403 GMT, after touching $90.76 on Tuesday, the highest price
since October 2008. ICE Brent <LCOc1> fell $1.04 to $90.35.
MARKETS TIGHTEN
Record production cuts by the Organization of Petroleum
Exporting Countries at the end of 2008 kicked off a fall in
U.S. and global oil inventories that has helped prices regain
about half the territory lost from their July 2008 peak of
$147.27 through their December 2008 trough of $32.40.
OPEC next meets on Dec. 11 in Quito, where it is expected
to leave output targets unchanged, as prices stay within a
$70-$90 range, which Saudi Arabian oil minister Ali al-Naimi
last month said was acceptable for both consumers and producers.
"OPEC is of the view to let it rise to about $90," Taylor
said. "There are no fundamental reasons for it to go higher."
Iran's OPEC governor described the world oil market as
balanced, with the current price of around $90 a result of
supply being in line with demand, the Oil Ministry news agency
Shana reported on Tuesday. []
Although U.S. crude oil inventories fell much more than
expected last week, refined product stocks rose as refinery
utilization rates surged, the American Petroleum Institute
(API) said on Tuesday.
Crude inventories fell 7.3 million barrels in the week
through Dec. 3, compared with analyst expectations for a 1.3
million barrel drop in a Reuters poll.
But gasoline inventories rose 4.8 million barrels,
compared with analyst expectations of a 500,000 barrel
increase, while stocks of distillate fuels including heating
oil and diesel rose 1.7 million barrels, against an average
forecast for a 500,000 barrel decline.
Government data on stocks and demand is due on Wednesday
from the Energy Information Administration (EIA) at 15:30 GMT.
"From a fundamental point of view, demand in the U.S. is
still uncertain," Taylor said. "China is the driver and that
will be very positive for the crude market," he added,
referring to the nation's November trade data due on Friday.
The U.S. government on Tuesday left its forecast for world
oil demand growth in 2011 virtually unchanged, as it lifted
its outlook for oil supplies from non-OPEC countries this year.
The EIA said it expected world oil consumption to rise
1.43 million barrels per day next year, down 10,000 bpd from
the 1.44 million bpd increase it projected last month.
The U.S. dollar rose in early Asian trade on Wednesday and
looked set to climb further in the short term, having powered
across the board overnight on the back of a spike in U.S. bond
yields.
U.S. government bond prices fell sharply on Tuesday amid
worries over the fiscal outlook, while Wall Street stocks
ended up only slightly on concern about the impact of higher
long-term rates.
Japan's Nikkei rose over 1 percent on Wednesday, hitting
its highest level in almost seven months.
(Editing by Clarence Fernandez)
