Oil drops from highest on signs gains excessive

by on January 3, 2013 8:44 am GMT

Oil slid for the first time in three days in New York on speculation that its surge to the highest level in three months yesterday may have been excessive.

Futures lost as much as 0.7 percent after rallying 2.6 percent in the past two days as U.S. lawmakers passed a bill to undo automatic tax increases and spending cuts that threatened growth in the world’s biggest oil-consuming country. Crude declined today as technical indicators showed futures may have risen too quickly for further gains to be sustainable, according to data compiled by Bloomberg.

“We’re getting a mild sell signal and the coincidence of those levels mean that some traders will be bailing out,” said Michael McCarthy, a chief strategist at CMC Markets in Sydney. “What we’re seeing is longs closing out, taking some profit.”

West Texas Intermediate for February delivery dropped as much as 63 cents to $92.49 a barrel in electronic trading on the New York Mercantile Exchange and was at $92.89 at 3:20 p.m. in Singapore. The contract yesterday climbed 1.4 percent to $93.12 a barrel, the highest settlement since Sept. 18. The volume was 43 percent below the 100-day average for the time of day.

Brent oil for February settlement on the London-based ICE Futures Europe exchange fell as much as 65 cents, or 0.6 percent, to $111.82 a barrel. Prices advanced 3.5 percent in 2012, a fourth annual gain. The number of contracts changing hands was 46 percent less than the 100-day average.

New York crude yesterday settled higher than the 30-day upper Bollinger Band for the fourth time in a week, signaling the market is overbought, according to data compiled by Bloomberg. Prices decreased in mid-September after closing above the same indicator, about $92.49 a barrel today.

Oil Inventories

Oil’s 14-day relative strength index rose to 68.1 yesterday, the highest level since Sept. 14. A reading above 70 is a signal to investors that price increases may have been excessive. It is at 66.7 today.

U.S. crude stockpiles fell by 500,000 barrels to 370.6 million in the seven days ended Dec. 28, according to the median estimate of nine analysts surveyed by Bloomberg News before an Energy Department report tomorrow. A drop of that size would leave supplies at the lowest level since the week to Oct. 12.

The Energy Department is scheduled to release its weekly report tomorrow in Washington, two days later than usual because of the New Year holiday. The industry-funded American Petroleum Institute will publish its inventory data today.

Stockpiles at Cushing, Oklahoma, America’s largest storage hub and the delivery point for the New York contract, increased 2.21 million barrels to a record 49.2 million in the seven days ended Dec. 21, the Energy Department reported on Dec. 28.

Seaway Expansion

WTI slid 7.1 percent in 2012 as the U.S. shale boom deepened a supply glut at Cushing. That left it at an average $17.48 a barrel below Brent last year, compared with a premium of about 95 cents in the 10 years through 2010. WTI’s discount is $19.28 today.

“Final work is being performed” on the Seaway pipeline that was reversed in May to carry oil from Cushing to the Gulf Coast, owners Enterprise Products Partners LP (EPD) and Enbridge Inc. (ENB) said yesterday. Capacity is being expanded to 400,000 barrels a day from 150,000 barrels and operations will start at full rates by the end of next week, according to a joint statement.

The U.S. House vote to pass legislation avoiding the so- called fiscal cliff capped a final push as Republicans balked at a bipartisan Senate bill. House Speaker John Boehner ordered a vote even as 151 of 236 Republicans, including Majority Leader Eric Cantor, ultimately voted no. President Barack Obama said he’d sign the bill into law.