Oil slips toward $82 in Europe as rally pauses

Oil prices slipped toward $82 a barrel Thursday, pausing from a rally that lifted the commodity to a three-month high this week amid a weakening dollar and positive corporate earnings.

By early afternoon in Europe, benchmark crude for September delivery was down 35 cents to $82.12 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 8 cents to settle at $82.47 on Wednesday.

Oil has traded in the $70s for most of this year as doubts about the strength of the economic recovery in developed countries offset surging crude demand in developing economies.

Signs of improving U.S. oil demand helped support crude prices. In its weekly report Wednesday, the Energy Department said commercial oil inventories fell by 2.8 million barrels last week, a bigger drop than analysts had expected.

On the other hand, oil stocks in Cushing, Oklahoma, the delivery point for the Nymex contract, edged toward record highs at over 37.8 million barrels.

Also on Wednesday, payroll company ADP said private employers increased hiring last month and a service sector index rose unexpectedly in July. Broadcaster CBS Corp., video game maker Electronic Arts Inc., online travel site Priceline.com Inc. and Anadarko Petroleum Corp. reported better than expected second-quarter earnings.

"For the moment, the battle between pessimistic macroeconomic sentiment and strong global oil data has been resolved in favor of the latter," Barcays Capital said in a report. "We see $80 and above as the price aptly befitting fundamentals."

Others, however, had the opposite view, saying fundamentals did not justify current prices.

Analysts at Commerzbank in Frankfurt said speculative investments in the oil market were on the rise due to a generally weaker U.S. dollar and reduced risk aversion, mainly technical factors.

"As the supply/demand balance remains comfortable, we do not expect the oil price to lastingly exceed $80 a barrel and instead see it declining toward $70 in the months ahead," Commerzbank said.

In other Nymex trading in September contracts, heating oil was down 0.99 cent to $2.1923 a gallon, gasoline skidded 0.79 cent to $2.1671 a gallon and natural gas was off 0.4 cent at 4.733 per 1,000 cubic feet.

In London, Brent crude was down 51 cents to $81.69 a barrel on the ICE Futures exchange.