Oil prices drop after spike above 83 dollars

New York’s main futures contract, light sweet crude for February delivery, shed 32 cents to 82.86 dollars a barrel and was on course to end lower for the first time in 10 sessions.

The US benchmark oil rose to an intraday peak of 83.52 dollars on Wednesday, its highest since October 9, 2008.

Brent North Sea crude for February fell 30 cents to 81.57 dollars in London trading on Thursday.

The cold spell sweeping across the northern hemisphere has pushed up prices but investors on Thursday were looking at signs of weakening energy demand in the US, the world’s biggest oil user, analysts said.

A weekly report by the US Department of Energy (DoE) on Wednesday showed that crude oil reserves rose 1.3 million barrels in the week ending January 1, instead of the expected drop of some 300,000 barrels.

Stockpiles of distillates — including heating fuel and diesel — fell 300,000 barrels in the week, much less than the average analyst forecast of a drop of 1.8 million barrels amid cold weather across sections of the US.

“The inventory statistics were very bearish (negative),” said Mitsubishi Corp. analyst Tony Nunan.

“A much bigger draw was expected but … it got a lot colder after that report so we could see much bigger draws in inventories next week.”

Nunan added that geopolitical factors including terrorism concerns in Yemen following the attempted Christmas Day bombing of a Northwest Airlines flight and tensions between the US and Iran could send prices higher.

“I think that a lot of people realise that there is still a big threat in Yemen which is right next to Saudi Arabia, so that could be a big geopolitical risk issue.”

Oil prices began 2010 with a bang on Monday, soaring by more than two dollars as freezing temperatures spread.