Oil settles below US$90 on supplies report

Energy prices dropped Thursday after the government said U.S. oil and natural gas supplies fell less than expected last week.

NEW YORK — Energy prices dropped Thursday after the government said U.S. oil and natural gas supplies fell less than expected last week.

Benchmark crude for February delivery lost $1.28 to settle at US$89.84 a barrel. It was the first time in more than a week that oil settled below US$90.

Oil has surged for most of December as U.S. petroleum consumption ticked higher and traders looked forward to 2011, when oil is expected to touch $100 per barrel and perhaps go higher.

But the price of benchmark crude tumbled Thursday after the U.S. Energy Department’s Energy Information Administration said oil supplies declined by 1.3 million barrels last week. A drop in supplies often supports higher prices, but analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., thought the drop would be bigger — around 3.2 million barrels.

Investors worried that the report showed demand for energy was not continuing to pick up, despite positive economic news, including a report Thursday from the U.S. Labour Department that said the number of people applying for unemployment benefits fell to 388,000, the lowest level in almost two and a half years.

The EIA also released its weekly report on the U.S. natural gas supplies, which showed they shrank by 136 billion cubic feet.

That was also less than analysts expected and a relatively small dent in total supplies of more than 3.2 trillion cubic feet, eight per cent above the five-year average.

Milder weather across most of the United States over the next 10 days should reduce heating demand and keep a lid on natural gas prices.

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