Oil sheds overnight gains on sharp fall in US inventory

Oil fell in Asian trade today, surrendering overnight gains fuelled by a huge decline in US crude inventories, analysts said.

New York's main contract, light sweet crude for January delivery, was off seven cents to $88.55 a barrel and Brent North Sea crude, also for January delivery, fell eight cents to $92.12.

The two contracts closed higher on Wednesday after a Department of Energy report showed US crude reserves fell 9.9 million barrels in the week to December 10 -- the biggest weekly drop in eight years.

Analysts polled by Dow Jones Newswires had expected a fall of only 2.7 million barrels during freezing weather in the US northeast region, the world's biggest heating oil consumer.

"We expect US energy markets to continue to tighten through 2011 as economic recovery gains momentum and the US household sector gradually recovers," analysts from the Commonwealth Bank of Australia said in a commentary.

"This will help underpin stronger oil market demand and is a key reason we see oil prices headed towards $100 a barrel next year," they said.

Oil first hit $100 in January 2008.