Oil fell more than $1 to near $89 a barrel today, deepening its sharp profit-taking retreat from this week's record high on recovering Mexican oil output and an expected rise in weekly US crude stocks.
Traders were also taking profits amid uncertainty over how aggressive the US Federal Reserve will be in fueling economic growth, although the dollar's drop to a fresh low against the euro showed investors betting on a rate cut today.
US oil futures more than doubled earlier losses, dropping $1.34 to $89.04 a barrel by 3.49am. Prices fell by 3.4 per cent a day ago after hitting a record high of $93.80 on Monday. London Brent dropped $1.01 to $86.43.
Just as Federal Reserve policy-makers began meeting yesterday against the backdrop of a still-plummeting U.S. housing market that is sapping consumer optimism, the Wall Street Journal reported that a further reduction in rates was not a sure thing.
Before the rate decision is announced toward day's end, however, oil traders will be looking for an expected 600,000-barrel build in weekly US crude stockpiles, buffering inventories that are running about 6 percent below a year ago.
Analysts also expect a 500,000-barrel decline in distillate stocks and a 100,000-barrel drop in gasoline, a Reuters poll found, despite signs of weaker US consumption.
"We are in the low-demand season right now before winter starts, so we will see a build in inventories if demand doesn't pick up," said Tony Nunan, risk manger for Mitsubishi in Tokyo.
Rising stocks may give OPEC even more cause to resist pressure to increase production, especially with its agreed 500,000 barrels per day (bpd) rise due to take effect tomorrow.
OPEC President Mohammed bin Dhaen al-Hamli reiterated on Wednesday that the group will always step in to meet supply shortfalls, although he said an output increase was not on the agenda when its members meet for informal talks in Riyadh in mid-November.
The return of Mexican crude oil production also provided some relief as the country, a top-three oil supplier to the United States, will be able to operate its storm-crippled crude oil production as per normal by Thursday.