Oil Trims 3rd Weekly Gain on Speculation Rally Excessive

Oil fell for the first time in four days, paring a third weekly advance in New York, on speculation that its rise to a three-month high was not sustainable.

Futures dropped as much as 0.7 percent after yesterday’s 1.4 percent increase to more than $95 a barrel. Crude’s 14-day relative strength index rose to 66.6 yesterday, its highest since March and near the 70 level considered to signify a market is overbought. Oil may slide next week on concern that slower economic growth in the U.S. will reduce demand, a Bloomberg survey showed. The world’s biggest crude consumer is considering a plan to release emergency stockpiles, Reuters reported.

“Oil is simply overbought, and so some profit-taking will kick in,” said Andrey Kryuchenkov, an analyst at VTB Capital in London who predicts that West Texas Intermediate crude will struggle to pass $96 a barrel. “But ultimately geopolitical tensions and the macroeconomic backdrop will set the tone in coming weeks.”

Oil for September delivery fell as much as 62 cents to $94.98 a barrel in electronic trading on the New York Mercantile Exchange. It was at $95.08 at 12:22 p.m. London time. The contract increased $1.27 yesterday to settle at $95.60, the highest closing price since May 11.

Brent crude for October settlement slid as much as 1.6 percent to $113.39 a barrel on the London-based ICE Futures Europe exchange. The September future expired yesterday at $116.90, up 0.6 percent. Brent’s premium to New York oil for the same month was at $18.39 a barrel, down from $21.30 yesterday.

U.S. Data

Oil has climbed 2.5 percent in New York this week after U.S. retail sales, industrial output and building permits for July exceeded expectations. Crude was also supported by a report on U.S. stockpiles, which dropped by 3.7 million barrels last week as consumption reached a nine-month high, according to Energy Department data released Aug. 15.

Crude is trimming gains after its 14-day relative strength index reached the highest level since March and prices failed to close above technical support levels. Oil settled yesterday below the upper Bollinger Band on the daily chart, at $96.47 a barrel today. The 14-day relative strength index rose to 66.6. A reading of 70 and above is a sign it may have risen too fast.

Losses reflect “traders repositioning themselves in light of the overnight moves,” said Michael McCarthy, a chief market strategist at CMC Markets in Sydney.

Fifteen of 27 analysts, or 56 percent, forecast crude will decline through Aug. 24 in the Bloomberg survey. Seven respondents, or 26 percent, predicted that futures will gain and five said there will be little change in prices. Last week, 48 percent of analysts and traders projected an increase.

Brent Premium

North Sea Brent remained at least $20 a barrel more expensive than West Texas Intermediate traded in New York in the five days through yesterday after the gap almost doubled since June 20, according to data compiled by Bloomberg. Goldman Sachs Group Inc. has predicted since April that the spread will drop to $5 a barrel in three months.

The growing difference underscores how falling output from the North Sea’s aging oilfields and U.S.-led sanctions on Iranian crude sales are stoking Brent while a production boom adds to a glut of landlocked U.S. supplies, limiting WTI gains.

The White House is considering a plan to potentially release of oil from the Strategic Petroleum Reserve, Reuters reported, citing a source with knowledge of the situation.

“Crude’s a little bit overbought,” said Ken Hasegawa, a commodity-derivative sales manager at Newedge Group in Tokyo. Investor concern over a potential stockpile release “is one of the factors that might be negative for oil,” he said.

To contact the reporters on this story: Jacob Adelman in Tokyo at jadelman1@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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