Crude Ends Below $98 As Rally Fades

Crude oil futures prices dropped Friday, tipping under $98 a barrel in further retreat from the triple digit levels hit earlier this week.

After topping $100 Wednesday following the sale of a key U.S. pipeline, traders have pulled back due to concerns about ripple effects from Europe's debt crisis and worries that crude rallied too high, too fast.

While the sale and planned reversal of the Seaway Pipeline should ameliorate a U.S. supply glut beginning sometime next year, in the short term the effect on the physical crude markets will be minimal. For that reason, the spike in oil futures appeared to be an overreaction for many market participants, who opted to lock in returns.

"It's reached levels where you should be taking profits," said Brian LaRose, an energy analyst at brokerage United-ICAP. "There is the risk here in the short term for a substantial correction."

Light, sweet crude for December delivery settled $1.41, or 1.4%, lower at $97.41 a barrel on the New York Mercantile Exchange, after falling as low as $96.64 in earlier trading.

The December contract expired at the end of trading Friday, and the January contract settled $1.26 lower at $97.67 a barrel.

Brent crude on the ICE futures exchange was 16 cents lower at $107.58 a barrel.

Early Friday, oil futures appeared ready to move higher as broader markets focused on the possibility of greater involvement by the International Monetary Fund in bailing out some of Europe's struggling members.

But crude broke its connection to a rising stock market and a weakening dollar--two markets that typically pull oil higher--as traders focused on technical market signals that suggested the latest oil rally peaked when prices crossed $102 a barrel earlier this week, a 10% rise since the beginning of November.

"It's like a rubber band, when you stretch a rubber band too far in one direction, it tends to snap," said Peter Beutel, president of trading advisor Cameron Hanover.

The decline in crude kept pressure on other commodities, including corn and cotton. December corn futures fell 0.7% to $6.1025 a bushel, while December cotton futures dropped 4.7% to 94.81 cents a pound.

Still, investors expect oil prices could continue to rise through next year, as demand for fuel products in developing countries burns through inventories.

On Friday, BNP Paribas raised its oil price forecast for next year, and now expects Nymex-traded West Texas Intermediate to average $104 a barrel, up from a prior forecast of $101 a barrel. The firm expects Brent to trade at $116 a barrel in 2012, unchanged from its previous forecast.

"Global oil demand growth has been resilient, notably in emerging markets. And as the northern hemisphere's winter fast approaches [a peak period for demand], global oil demand will seasonally swing upwards," a BNP Paribas analyst said in a client note.

Front-month December reformulated gasoline blendstock, or RBOB, settled 2.87 cents lower at $2.4784 a gallon. December heating oil settled 5.07 cents lower at $3.0325 a gallon.


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