Crude oil futures declined for the second day on Wednesday as traders booked profits following a rally to $90.76 a barrel, the highest in 26 months on Tuesday, and on stronger dollar.

Crude for January delivery declined 0.65 percent to $88.11/barrel ahead of Energy Department’s inventory data, which is expected to show stockpiles declined 900,000 barrel.

Renewed concerns about Europe's debt crisis and speculation over Chinese interest rate hike also dampened the demand for black gold.

The dollar strengthened against most of its counterparts for the second day as extension of tax cuts brightened the outlook for U.S. growth. The euro declined 0.32 percent to 1.3219 against the dollar and the yen declined 0.71 percent against the greenback.

Crude climbed on Tuesday, fueled by a compromise between President Obama and Republicans on tax extensions and unemployment benefits which supported growth prospects.

The agreement would extend all Bush-era tax cuts for two years, extend unemployment insurance for an additional 13 months and reduce payroll taxes by 2 percent for all workers for a full year.

On Tuesday, crude traded around $89 per barrel, recording its highest around $90.73 and lowest around $88.08 per barrel and ended around $88.23 per barrel.

The decline came after American Petroleum Institute said gasoline stockpiles increased 4.8 million barrels last week, and pessimistic data from Europe as finance ministers failed to agree on new initiatives at the EU meeting yesterday to deal with sovereign crisis.