Oil Drops From Nine-Month High After IMF Warns on Global Economic Growth

Oil fell from the highest level in more than nine months as investors speculated prices may have climbed too far after the International Monetary Fund warned that the global economy is still at risk of a slowdown.

Futures slid as much as 0.5 percent in New York after seven days of gains. Oil’s relative strength index signaled that the longest winning streak since January 2010 may have been exaggerated. The world economy is “not out of the danger zone” amid fragile financial systems, high debt and rising world oil prices, IMF Managing Director Christine Lagarde said. Prices gained the most in two months last week as sanctions tightened against Iran, OPEC’s second-biggest producer.

“The market is taking a bit of profit,” said Jonathan Barratt, chief executive of Barratt’s Bulletin, a commodity markets newsletter in Sydney. “There’s still a lot of uncertainty. The market is still concerned about what will happen with Iran.”

Oil for April delivery fell as much as 58 cents to $109.19 a barrel in electronic trading on the New York Mercantile Exchange and was at $109.28 at 3:46 p.m. Singapore time. The contract gained 1.8 percent to $109.77 on Feb. 24, the highest close since May 3. Prices increased 6.3 percent last week and are 13 percent higher the past year.

Brent oil for April settlement declined 90 cents to $124.57 on the London-based ICE Futures Europe exchange. The European benchmark contract’s premium to New York-traded West Texas Intermediate was at $15.29, compared with $15.70 on Feb. 24 and a record $27.88 on Oct. 14.

Relative Strength

New York crude’s 14-day relative strength index climbed to 76.9 on Feb. 24, the highest since April, according to data compiled by Bloomberg. A reading above 70 indicates futures have risen too quickly and further gains aren’t sustainable. Investors tend to sell contracts when prices are considered overbought. Today’s RSI is around 75.

Group of 20 nations must strengthen their economies against further shocks including higher crude prices, Lagarde said after a meeting of the G-20 in Mexico City. Higher oil prices may push inflation in South Korea, the world’s fifth-largest oil importer, above the government’s target and have a “far- reaching impact” on the economy, Finance Minister Bahk Jae Wan said at the meeting.

The G-20 rebuffed German-led calls to help Europe fight its debt crisis, saying any decision on outside aid hinges on the euro area delivering more financial firepower within two months. Progress will be assessed in April, when officials gather in Washington for the IMF’s spring meetings, the G-20 said in a statement.

Iran Threat

German lawmakers vote on a second Greek rescue package today. Europe’s biggest economy is also weighing whether to agree to beef up the region’s financial backstop to a potential 750 billion euros ($1 trillion) at a March 1-2 European summit.

Oil has advanced 11 percent this year amid concern that sanctions against Iran’s nuclear program will disrupt crude supplies from the second-biggest producer in the Organization of Petroleum-Exporting Countries. Iran has threatened to shut the Strait of Hormuz, a transit route for a fifth of the world’s oil, in response to an embargo.

Russian Prime Minister and presidential front-runner Vladimir Putin warned Western leaders against a military strike on Iran. Russia is concerned that there is a “growing threat” of action against Iran that would be “truly catastrophic,” he said in the latest of a series of articles published before Russia’s March 4 elections.

Hedge funds and other large speculators raised wagers on rising prices 11 percent in the week ended Feb. 21, according to the Commodity Futures Trading Commission’s Commitments of Traders report. Bets increased 26 percent over two weeks, the biggest gain since March.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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