The price of oil finished sharply lower on Tuesday after rising to a 26-month high, as investors took profits on concerns that the price of crude has climbed too high, too fast.
Benchmark oil for February rose as high as $92.07 a barrel on the New York Mercantile Exchange before settling at $89.38 a barrel, down $2.17 or more than 2 percent. Oil last settled above $92 on Oct. 3, 2008, when it reached $93.88.
Oil prices rode positive economic news to a gain of 8.2 percent in December. Now, investors seem concerned that high oil prices could be an impediment to growth.
"The question everyone has is how much further do we have to go before we start stunting the economic recovery," said Tom Bentz, an analyst at BNP Paribas Commodity Futures.
Tradition Energy analyst Gene McGillian thinks profit-taking was behind Tuesday's drop. He still expects oil prices to range from $95 to $100 a barrel next year.
McGillian believes traders will closely watch stock markets for cues about consumer sentiment. Wall Street was mixed after stocks rallied Monday to open the trading year. The Dow Jones Industrial Average closed more than 20 points higher on Tuesday, while the Nasdaq and the S&P 500 ended a little lower.
The dollar strengthened Tuesday on positive economic news. The Commerce Department said factory orders rose in November. It was the largest increase in eight months. And U.S. carmakers reported strong year-end sales.
Commodities like oil, which are priced in dollars, become more expensive and less appealing to buyers using other currencies when the dollar rises.
Higher oil prices have raised gasoline pump prices above $3 a gallon in many parts of the country. The national average for regular gasoline on Tuesday was $3.073 a gallon, according to AAA, Wright Express and the Oil Price Information Service. That's about 13 cents more than a month ago and 41 cents higher than a year ago.
In other Nymex trading in January contracts, heating oil fell 4.63 cents to settle at $2.5065 a gallon and gasoline lost 1.33 cents to settle at $2.4140 per gallon. February natural gas lost 1.9 cents to settle at $4.650 per 1,000 cubic feet.
In London, Brent crude dropped $1.31 to settle at $93.53 a barrel on the ICE Futures exchange.
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