Oil slips after correction warning

Tighter fundamentals lift futures benchmarks by 13%

Oil prices gave away earlier gains on Wednesday as analysts warned of a downward correction after prices gained more than 13 percent over the past month.

Despite the decline, overall oil markets remained well supported on the back of tightening supply and strong global demand. The tighter fundamentals lifted both crude futures benchmarks about 13 percent above levels in early December, helped by production curbs by the Organization of the Petroleum Exporting Countries (OPEC) and Russia, as well as by healthy demand growth.

US West Texas Intermediate (WTI) crude futures CLc1 were at $63.53 a barrel at 5 pm, down 20 cents from their last settlement. WTI rose to $64.89 on Tuesday, also the highest since December 2014.

Norbert Ruecker, head of commodity research at Swiss bank Julius Baer, said a price “correction should occur... [as] hedge fund expectations for further rising prices have reached excessive levels.”

He said this was especially the case as risk factors – including tensions in Qatar, in the Kurdish region of Iraq and in Iran – that have helped boost Brent have so far not caused significant supply disruptions.

Money managers have raised their bullish positions in WTI and Brent crude futures and options to a record, according to data from the US Commodity Futures Trading Commission and the Intercontinental Exchange.

Wang Tao, a Thomson Reuters commodity analyst, said Brent may fall to around $68.50 a barrel due to technical chart indicators.

Still, traders and analysts said that overall oil markets are well supported and steep price falls unlikely.

The OPEC and Russia have continued to withhold production since January 2017 and the cuts are set to last through 2018.

This restraint has coincided with healthy oil demand. “Oil remains underpinned by the solid economy with strong oil demand tightening global oil inventories. The past years’ surplus supplies are slowly disappearing,” Ruecker said.