Brent crude retreated from its highest closing level in more than four months in London as the prospect of renewed talks between western governments and Iran spurred speculation that last week’s gains were excessive.
Futures slipped as much as 0.8 percent, while West Texas Intermediate halted its longest stretch of weekly advances in more than eight years. Iran considers an offer to negotiate directly with the U.S. over its nuclear program a “step forward” and expects to resume meetings with world powers later this month, Foreign Minister Ali Akbar Salehi said. Brent’s 14-day relative strength index was at 70, a technical level that suggests prices have climbed too quickly.
“It reduces the risk that Middle East tensions, or Iran tensions, will increase in the short term and bring oil prices substantially higher,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG in Vienna, who predicts Brent will average $114 a barrel this quarter.
Brent for March settlement slid as much as 90 cents to $115.86 a barrel on the London-based ICE Futures Europe exchange, and was at $115.92 at 12:41 p.m. local time. It closed at $116.76 on Feb. 1, the highest since Sept. 13. The volume of all contracts traded was 14 percent above the 100-day average. The European benchmark grade was at a premium of $19.16 to WTI futures in New York.
WTI for March delivery was at $96.75 a barrel, down $1.02 a barrel, in electronic trading on the New York Mercantile Exchange. The volume of all contracts traded was 8 percent above the 100-day average. Futures rose 28 cents to $97.77 on Feb. 1, the highest close since Jan. 30.
Talks to defuse tension over Iran’s nuclear work will be held in Kazakhstan Feb. 25, Salehi said yesterday at the Munich Security Conference. The U.S. will offer bilateral negotiations if the Islamic republic’s Supreme Leader Ayatollah Ali Khamenei is prepared for “serious” discussions, U.S. Vice President Joe Biden said the day before at the same event.
Hedge funds and refiners vied to buy oil futures last month. Money managers increased net-long positions, or wagers on rising prices, for a seventh week to a nine-month high of 218,604 in the week ended Jan. 29, according to the Commodity Futures Trading Commission’s Feb. 1 Commitments of Traders report. It was the longest run of gains in records dating back to June 2006. Bullish wagers held by refiners and producers advanced for a fifth week to the most since at least June 2006.
In London, hedge funds and other money managers raised bullish bets on Brent to their highest level in two years for a second consecutive week, according to ICE data.
Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 179,735 lots, the London-based exchange said today in its weekly Commitment of Traders report. That’s the highest since at least January, 2011, the earliest date for which the data are available. The increase of 25,822 contracts, or 17 percent, is also the biggest since the records began.
“It’s time to correct,” said Andrey Kryuchenkov, a commodities analyst at VTB Capital in London. “It’s only logical to pause after such a strong rally lately, given that supply and demand are fully in balance. It was overwhelming economic optimism and a spike in the geopolitical risk premium that drove prices here.”