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WTI Crude Slips on Speculation Gain to Month-High Is Excessive

Jan. 31 (Bloomberg) -- West Texas Intermediate crude fell amid speculation that a rally has driven prices to a level that’s encouraging some traders to sell.

Futures in New York are approaching technical levels signaling an overbought market having gained for three weeks. Government data tomorrow may show a manufacturing index in China, the world’s second-largest oil consumer, fell to the lowest in six months, according to a Bloomberg News survey. WTI will probably decrease next week amid concern that growth in emerging economies will slow, curbing fuel demand, a separate survey of analysts and traders by Bloomberg showed. Brent crude also declined today.

WTI for March delivery lost as much as 0.6 percent to $97.62 a barrel in electronic trading on the New York Mercantile Exchange and was at $97.75 as of 11:49 a.m. London time. The crude gained 87 cents yesterday to the highest settlement since Dec. 31. Front-month WTI has traded between about $91 and $99, intraday, this month.

“Both crudes are stuck in a range and we have been at the high end of it for the past couple of days and there’s not much more to be had on the upside,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen, said by phone.

Brent for March settlement fell as much as 79 cents to $107.16 a barrel on the London-based ICE Futures Europe exchange and last traded for $107.26. The European benchmark crude was at a premium of $9.47 to WTI contracts on the ICE exchange, compared with $9.72 yesterday, the first time it closed below $10 since Nov. 7.

Approaching Resistance

“Traders are locking in gains,” said Michael McCarthy, a chief strategist at CMC Markets in Sydney who predicts investors may sell WTI at about $98.50. “Not only because they’ve seen significant rises in their positions but also we’re now approaching several technical resistance points.”

The 14-day relative strength index for WTI settled yesterday at 60.25,the highest reading since Dec. 27, according to data compiled by Bloomberg. Investors typically are more likely to sell contracts when the reading approaches or exceeds 70, a sign a market is overbought. The volume of all WTI futures traded today was about 25 percent below the 100-day average.

Seventeen of 31 analysts, or 55 percent, forecast crude will decrease through Feb. 7, according to the Bloomberg survey. Eight respondents, or 26 percent, projected prices will gain, and six said there will be little change. Last week, 47 percent of analysts projected a drop.

China Manufacturing

China’s Purchasing Managers’ Index probably slid to 50.5 this month, according to a Bloomberg News survey before data from the National Bureau of Statistics and the nation’s logistics federation. That compares with 51 in December.

Emerging economies have benefited from cheap money as three rounds of U.S. Federal Reserve bond-buying pushed capital into their borders in search of higher returns. The central bank began paring the purchases by $10 billion to $75 billion this month and announced plans Jan. 29 to reduce the amount by another $10 billion.

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