Oil crawls back to near $87 a barrel in Europe

Oil prices inched up toward $87 a barrel Wednesday after falling more than 4 percent in less than a week on mixed economic news and the possibility of increased OPEC production.

By early afternoon in Europe, benchmark crude for March delivery was up 62 cents at $86.81 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost $1.68 to settle at $86.19 on Tuesday.

Oil had not been below $87 since Dec.1. It has fallen more than 4 percent since Thursday, when it was approaching $92 a barrel. About half of the drop happened in the last two days.

"Those $100 predictions for the New Year look a bit silly right now," said The Kilduff Report, edited by Mike Fitzpatrick in New York. "This is not to say that it still couldn't happen, but there is probably a realization that the fragile recovery is made even more so by $90 oil."

One of the main reasons for the decline this week is comments on Monday by the Saudi oil minister, which many analysts and investors took to mean that Saudi Arabia, the world's biggest oil producer, thought oil had gotten too expensive and could threaten global economic growth. He seemed to imply that the Saudis and other members of the Organization of Petroleum Exporting Countries could raise production to bring down the price of oil.

Goldman Sachs analysts think it's possible that OPEC has already stepped up production. They say global demand increased in December, but oil supplies did not appear to decline at the same pace.

The Energy Department releases its weekly report on U.S. crude oil supplies on Wednesday. Analysts expect inventories to increase by 1.7 million barrels, according to Platts, the energy information arm of McGraw-Hill Cos.

They also expect the report to show that refineries operated at a slower rate than the week before. "The reduced demand for crude oil that comes with refinery maintenance also has played a role in pulling prices back recently," energy consultants Cameron Hanover said.

U.S. economic news was mixed on Tuesday. While the Conference Board's Consumer Confidence index hit an eight-month high, it was still far below levels that indicate a healthy consumer outlook. And the latest data on home prices shows them falling in eight major markets to the lowest level since the housing bubble burst in 2007.

In other Nymex trading, heating oil rose 3.31 cents to $2.626 a gallon and gasoline added 2.61 cents to $2.3688 a gallon. Natural gas futures rose 0.2 cent to $4.475 per 1,000 cubic feet.

In London, Brent crude was up $1.26 to $96.51 a barrel on the ICE futures exchange.