* Prices fall for second day after hitting 27-mth high
* Technicals show U.S. crude price support above $88/bbl
* Coming Up: EIA weekly U.S. oil inventory report; 1530 GMT
(Changes dateline to LONDON, updates prices, adds detail)
By Emma Farge
LONDON, Jan 5 (Reuters) - Oil prices fell further from
27-month highs on Wednesday as a stronger dollar sapped investor
risk appetite for commodities, despite signs of tighter oil
supply fundamentals.
Oil staged a sharp rally in late December, helping to make
commodities the top performing asset class in 2010 but prices
have since retreated as investors opted to take profits.
U.S. crude for February <CLc1> fell 72 cents to $88.66 a
barrel by 1007 GMT, and were around 4 percent below the 27-month
peak hit on Jan 3. The U.S. dollar index rose by around 0.2
percent on Wednesday. <.DXY>
ICE Brent for February <LC0c1> fell 50 cents to $93.03 a
barrel but was still well supported relative to the U.S. crude
benchmark and held a near $4 premium.
"The price had gone up too high. There was quite a flow of
funds coming in and people have been taking profits. It's not
unexpected -- we've got all that spare capacity upstream and
downstream and still high stocks even though there have been
some draws," said Roy Jordan, analyst at Facts Global Energy.
Losses on Wednesday came despite data late in the previous
session showing a much larger-than-expected 7.5 million barrel
drop in crude inventories in the final week of 2010, according
to industry group American Petroleum Institute.
This normally bullish news was partially tempered by gains
in U.S. fuel stockpiles such as gasoline and distillates.
Data from government statistics body U.S. Energy Information
Administration, generally seen as a more authoritative source,
will follow on Wednesday at 1530 GMT. []
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For a graphic on US crude stocks and oil price, see:
http://r.reuters.com/keg64r
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Analysts MF Global said there could be a deeper correction
on oil, although technical analysts pointed to immediate price
support at between $88-$89 a barrel. []
"Markets could see somewhat more weakness on Wednesday, as
the current correction may have more room to run," said Edward
Meir at MF Global, adding that this week's sell off resembles a
similar trend in early 2010 when prices fell over 10 percent in
January.
One fundamental factor other than falling stocks that could
help limit downside on oil prices is strong demand due to cold
weather in the northern hemisphere, according to JBC Energy.
This month could be the coldest January for top oil consumer
the United States since the 1980s, according to Accuweather.com
[]
In other markets, world stocks as measured by MSCI
<.MIWD00000PUS> fell by nearly half a percent on Wednesday as
early losses in European shares weighed.
European industrial orders rose by 14.8 percent in October
from the previous year but less than a forecast 17 percent rise
in a Reuters poll. []
(Additional reporting by Alejandro Barbajosa in Singapore;
editing by Keiron Henderson)
