Oil falls below $89 on dollar strength

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 futures for February fell to an intra-day low of $88.16 a barrel and the lowest since December 20. By 1147 GMT, they were down 95 cents at $88.43 a barrel and were more than 4% below the 27-month peak hit in early January.
The U.S. dollar index rose by nearly 0.5% on Wednesday, making oil more expensive for non-dollar buyers.
ICE Brent for February fell 71 cents to $92.82 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 mln 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. fell by over half a percent on Wednesday as early losses in European shares weighed.
European industrial orders rose by 14.8% in October from the previous year but less than a forecast 17% rise in a Reuters poll.