Oil prices dropped below US$90 a barrel yesterday in Asia ahead of the US central bank's impending decision on its key interest rate.
Light, sweet crude for December delivery fell US$1.03 to US$89.35 a barrel in Asian electronic trading on the New York Mercantile Exchange by midafternoon in Singapore.
The Nymex crude contract fell US$3.15 to settle at US$90.38 a barrel on Tuesday, partly due to a research report from influential trading house Goldman Sachs advising clients to sell oil futures to lock in profits.
"The general expectation is that the Federal Reserve will cut the interest rate, and there may have been some precautionary profit taking ahead of that," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney.
Most investors expect the US Federal Reserve to deliver a quarter-point cut at the end of its two-day meeting yesterday.
The market has factored in a quarter-point cut in the benchmark US interest rate already, but a half-point cut could spark a new rally, Koichi Murakami, a broker at Daiichi Shohin, told Dow Jones Newswires.
"Some traders will continue profit-taking sales, but it is difficult to take large positions ahead of the two important indicators," Murakami said.
Besides waiting for the US Fed decision, traders are also watching for a weekly US petroleum inventory report expected to show crude supplies rose last week.
Oil futures' most recent price rally started a week ago, when the US Energy Information Administration reported a large, unexpected decline in crude inventories.
Analysts surveyed by Dow Jones Newswires, on average, predict that oil inventories rose 100,000 barrels during the week that ended last Friday, though their estimates vary widely.
The analysts said, on average, refinery use grew 0.5 percentage point to 87.6 percent of capacity; gasoline inventories rose 400,000 barrels and distillates fell 1 million barrels.