Oil hovers near $100 a barrel

Crude prices in record territory after touching milestone; traders await weekly inventory report.

NEW YORK (CNNMoney.com) -- Oil prices fell back early Thursday from the $100 a barrel level but remained in record territory as investors awaited the release of the government's weekly report on U.S. crude supplies.
U.S. crude for February delivery reached the $100 milestone for the first time ever on the New York Mercantile Exchange just after noon ET on Wednesday.
The surge was fueled by violence in oil-rich Nigeria, the prospect of more interest rate cuts, a halt in Mexican imports and talk of yet another drop in U.S. crude stockpiles.
Crude prices gave back some gains to settle the day up $3.64 at $99.62 on Wednesday, a new end-of-day record.
Prices eased early Thursday ahead of the latest government's stockpiles report. U.S. light, sweet crude for February delivery lost 31 cents to $99.31 a barrel in electronic trading on the New York Mercantile Exchange.
Analysts are expecting the inventory report - set for release at 10:30 a.m. ET, to show a 1.8 million barrel decline in crude supplies, according to a Dow Jones poll. It would mark the seventh straight week U.S. crude stocks have dropped.
Oil prices ended 2007 by gaining nearly 60 percent for the year, the largest jump this decade.
"This market is really gonna fly," Ira Eckstein, president of Area International Trading Corp, said Wednesday from the NYMEX floor as oil made its dizzying climb.
The White House ruled out opening the Strategic Petroleum Reserve to temporarily relieve prices, and instead called for more domestic production.
In Nigeria, bands of armed men on Tuesday invaded Port Harcourt, the center of the oil industry, attacking two police stations and raiding the lobby of a major hotel, The Associated Press reported. Four policemen, three civilians and six attackers were killed. The Niger Delta Vigilante Movement claimed responsibility for the attack.
At 2.1 million barrels per day, Nigeria was the world's eighth-largest oil exporter in 2006, according to the U.S. Energy Information Agency.
What $100 oil would cost you
A surprise fall in manufacturing activity sparked fears of yet another interest rate cut from the Federal Reserve. Interest rate cuts generally cause the dollar to fall - and oil prices to rise - as investors bail out of U.S. stocks and bonds and into commodities.
"The perception is that as the U.S. economy continues to weaken, the Fed will cut interest rates one more time," said Nauman Barakat, an energy trader at Macquarie Futures, the trading arm of Macquarie investment bank.
The Associated Press reported that several Mexican ports were closed due to rough weather.
PEMEX, the Mexican state oil company, could not be immediately reached for comment, but reports indicated the ports should be open by Thursday with minimal disruption to crude shipments.
At 1.7 million barrels per day, Mexico is the world's 10th largest exporter of crude and the second largest exporter to the United States behind Canada.
Oil has been on a tear over the last few months - rising from under $70 in August - as OPEC cuts from earlier this year began to eat into inventories in developed counties.
A falling dollar and reports pointing to tightening supplies as strong demand from developing countries swallows up new production gains have also pushed prices higher, as well as attracted a slew of investment money.
Crude has risen over five-fold since the start of 2002, largely for the same reasons.
Adjusted for inflation, oil is at or near the prices of the early 1980s. At that time, following the Iranian revolution and the outbreak of the Iran-Iraq war, oil traded in the high $30-a-barrel range, the equivalent of between $92 and around $103 a barrel in current prices, depending on the contract cited and the inflation calculation used.