Oil hovers above $89 ahead of U.S. supply reports

SINGAPORE — Oil prices hovered above $89 a barrel Tuesday in Asia as traders anticipated that weekly U.S. crude inventories would fall in a sign of improved demand.

Benchmark oil for February delivery was up 14 cents to $89.51 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract rose 77 cents to settle at $89.37 on Monday.

Crude inventories likely fell 2.4 million barrels last week, according to analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos.

The American Petroleum Institute is scheduled to announce its inventory numbers later Tuesday while the Energy Department's Energy Information Administration reports its weekly supply data Wednesday.

The EIA said last week that supplies dropped 9.9 million barrels the previous week, the biggest drop in eight years.

Oil traded in the $70s for most of this year, but jumped to a two-year high above $90 earlier this month as Federal Reserve measures to keep lending rates low fueled optimism U.S. economic growth will accelerate next year.

"Traders and investors are starting to feel more upbeat about the economy and about the impact of the Fed's moves in recent months to change the psychology," Cameron Hanover said in a report.

Some analysts are skeptical developed economies will recover strongly next year and expect crude demand to remain sluggish. Capital Economics predicts oil will fall to $75 next year and $60 in 2012.

In other Nymex trading in January contracts, heating oil fell 0.2 cent to $2.49 a gallon, gasoline futures rose 1.1 cents to $2.39 a gallon and natural gas dropped 2.2 cents to $4.22 per 1,000 cubic feet.

In London, Brent crude rose 9 cents to $92.83 a barrel on the ICE Futures exchange.