Oil falls below $87 a barrel in Europe

Oil prices fell back below $87 a barrel Thursday as traders weighed President Barack Obama's plans to boost the U.S. economy against rising crude inventories.

By early afternoon in Europe, benchmark crude for March delivery was down 62 cents to $86.71 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.14 to settle at $87.33 a barrel on Wednesday.

That was the first significant move higher for oil in a week after prices tumbled on signs the Organization of Petroleum Exporting Countries, which produce about 40 percent of the world's crude, could raise production to bring down the price of oil.

Traders had been taking their cue from world stock markets, which moved higher on Obama's call in the State of the Union address to close corporate tax loopholes and lower business tax rates — moves that could stimulate the world's biggest economy and boost demand for fuel.

But the possibility China may raise interest rates or take other tightening measures before Lunar New Year holidays begin next week kept a lid on oil prices.

"There is still a strong probability that China's central bank will raise interest rates or increase reserve requirements again to cool economic growth there," energy consultants Cameron Hanover said in a report.

Analysts at Sucden Financial in London said that "market traders are likely to watch U.S. jobless claims data and pending home sales report (Thursday) for signs of stable economic growth."

Adding to the caution, the Energy Department said U.S. stockpiles of oil and gasoline rose more than expected last week.

Crude supplies expanded by 4.8 million barrels to 340.6 million barrels. Gasoline supplies rose by 2.4 million barrels to 230.1 million barrels, while demand in the past four weeks increased 1.1 percent. Supplies of distillate fuel, which includes diesel and heating oil, declined by 100,000 barrels to 165.7 million barrels.

"Prices will likely remain within a $80-$95 trading range ... with the downside bias becoming more noticeable during the beginning of the second quarter when crude enters it seasonally weaker period," said senior commodity analyst Edward Meir at MF Global in New York.

In other Nymex trading in February contracts, heating oil was down 0.19 cent at $2.6679 a gallon and gasoline fell 1.54 cents to $2.4152 a gallon. Natural gas slipped 6.3 cents to $4.428 per 1,000 cubic feet.

In London, Brent crude was up 5 cents to $97.96 a barrel on the ICE Futures exchange