Oil prices slip amid profit taking

New York's main contract, light sweet crude for delivery in December, settled at $86.72 a barrel, down 34 cents from Monday's close.

In London, Brent North Sea crude for December delivery closed 13 cents lower at $88.33 after reaching a six-month high of $89.02.

Rich Ilczyszyn at Lind-Waldock said there was "profit taking across the board."

Oil prices had climbed earlier in the session but pulled back when the dollar firmed slightly against the euro amid concerns about European sovereign debt.

As the New York oil futures market closed, Wall Street stocks were firmly in negative territory, further weighing on crude oil prices that recently reached two-year highs.

"Crude oil had a very nice run over the past week," Ilczyszyn said.

"There was going to be some profit taking."

The New York futures contract finished lower for the first time since October 29, after piling on $5.63 over six sessions.

On Tuesday, the contract hit an intraday peak of $87.63, its highest level since early October 2008.

Investors appeared upbeat about demand. Andy Lipow at Lipow Oil Associates pointed out demand typically surges in the western hemisphere as winter approaches.

Oil prices had risen in recent days amid dollar weakness and after the US Federal Reserve last week unveiled an extra $600 billion in stimulus to goose the economic recovery.

The Fed's second quantitative easing plan, nicknamed QE2, is expected to dilute the value of the dollar and has drawn sharp criticism from the European Union, Brazil and China, among others.

"QE2 anger around the world continues to grow leading one to wonder if someone in the world might want to say that the United States is a currency manipulator," said Phil Flynn at PFG Best.

"The Chinese are already stockpiling oil and panic buying in cotton and other commodities may start to take the place of buying US debt."

The International Energy Agency, meanwhile, forecast that crude prices would rise to $113 a barrel by 2035,

The IEA projected demand for oil to rise by 18 per cent between 2009 and 2035, driven by developing countries, with nearly half the increase accounted for by China alone.