Oil prices slipped further below $90 a barrel Friday as investors took profits amid light year-end trading volume. Despite the fall, oil prices are set to end the year around 12 percent higher than where they started — a clear signal that the global economy has returned to growth following the worst recession since World War II .
By early afternoon in Europe, benchmark oil for February delivery was down 37 cents to $89.47 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost $1.28 to settle at $89.84 on Thursday.
Crude has dropped this week from a 26-month high of $91.88 on Monday as some investors sought to take profits after oil rallied during the fourth quarter from the mid-$70s.
Year-end trading is often complicated by investors closing out positions to present their portfolios in as good a light as possible.
"We're viewing the sharp sell-off as a deserved market correction within a bull market that has not likely seen a top," Ritterbusch and Associates said in a report.
Prices have also been weighed down somewhat by the news that U.S. crude supplies fell less than analysts expected last week. That suggests that growth in oil demand may disappoint.
The Energy Department's Energy Information Administration said Thursday that oil supplies declined by 1.3 million barrels last week. That was way lower than many analysts had been expecting — Platts, the energy information arm of McGraw-Hill Cos., for example, forecast a decrease of 3.2 million barrels.
Concerns about the health of the world economy and its bearing on oil demand continued to preoccupy the market.
"Some positive economic news from the U.S. — such as the recent decline in initial jobless claims — at year ending should not outshine how fragile the global economic recovery is," said analysts at JBC Energy in Vienna.
For its part, Sucden Research said weather factors could have an effect on oil prices from next week.
"There may be evidence of disruption to production offshore Australia and cold weather returning again to Europe. China still faces cold temperatures, and some Chinese regions could face power shortages up to about 10 percent of last year's consumption during the first two months of the year," Sucden said.
Despite starting lower on Friday, Sucden highlighted the vigor of oil prices as 2010 comes to a close.
"At a healthy percentage above the current annual average (near $79.68), Friday's closing price for WTI crude oil futures is likely to be the best annual close since 2007 and around 13 percent above last year's close," the London-based firm said.
In other Nymex trading in January contracts, heating oil dropped 1.55 cents to $2.4699 a gallon, while gasoline gained 0.84 cent to $2.4002 a gallon. February natural gas futures rose 2.2 cents to $4.36 per 1,000 cubic feet.
In London, Brent crude fell 48 cents to $92.61 a barrel on the ICE Futures exchange.
Associated Press writer Alex Kennedy in Singapore contributed to this report.