Oil edged lower as a record crude-buying spree by hedge funds spurs concern that surging prices since the year began may spark a correction.
Futures in New York dipped as much as 0.8 percent on Tuesday. Hedge funds last week boosted their bullish bets on crude to record levels, according to the U.S. Commodity Futures Trading Commission and ICE Futures data. Now traders are weighing technical indicators signaling crude may be overbought.
“Typically when the boat gets tipped greatly to one side, like it is right now, you get a reversal,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, by telephone. “There’s a lot of technical aspects working against” the price rally, he said.
Crude has touched three year-highs as the Organization of Petroleum Exporting Countries and its allies cut output as part of their plan to do so through the remainder of the year. OPEC and its allies shouldn’t make any hasty decisions given the recent increase in the crude price, Russian Energy Minister Alexander Novak told reporters in Moscow.
While price gains might encourage producers to lift output, it won’t significantly affect the price of the most immediate futures, according to a report from Goldman Sachs Group Inc. on Tuesday. At the same time, WTI’s 14-day relative strength index has lingered above 70 since last week, signaling the commodity is overbought.
West Texas Intermediate for February delivery fell 23 cents to $64.07 a barrel at 9:51 a.m. on the New York Mercantile Exchange. There was no settlement Monday because of the Martin Luther King Jr. holiday in the U.S., and all transactions will be booked Tuesday.
Brent for March settlement dropped 58 cents to $69.68 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $5.65 to March WTI.
Hedge funds increased their WTI net-long position by 10 percent to 437,770 futures and options during the week ended Jan. 9, according to data from the CFTC. The Brent net-long position increased 1.5 percent to a record 574,152 contracts, ICE Futures Europe data showed.