Oil Eases But Fall Seen as Temporary

Oil prices eased on Tuesday but few observers were willing to call a market top as investors continued to watch for signs that suppliers would struggle to keep pace with growing global demand.

Analysts said the most likely reason behind the move was profit-taking after oil prices spiked to nominal all-time highs on Monday, shrugging off efforts by the Organisation of Petroleum Exporting Countries to quash output fears.
Oil prices eased on Tuesday but few observers were willing to call a market top as investors continued to watch for signs that suppliers would struggle to keep pace with growing global demand.

Analysts said the most likely reason behind the move was profit-taking after oil prices spiked to nominal all-time highs on Monday, shrugging off efforts by the Organisation of Petroleum Exporting Countries to quash output fears.

Nymex WTI crude for May delivery fell $0.97 to $56.04, $2.24 below the all-time high of $58.28 it reached on Monday. Similarly, May IPE Brent crude traded down $0.79 to $55.44.

Trading volumes were not heavy, and the decline was modest – not characteristic of a market top according to Edward Meir at Man Financial. “The pattern should not be considered a technical reversal,” he said.

Figures released by the Commodity Futures Trading Commission revealed that non-commercial crude speculators on the New York Mercantile Exchange raised net long positions to 73,792 contracts for the week ending March 22, up from 69,509 in the previous week. Reinforcing the bullish market tone, this was the highest level of net long positions since March 23, 2004.

Although the build-up of such large positions could leave the market vulnerable to a sudden turn in sentiment, observers said the latest slip in crude prices was more consistent with small scale profit-taking.

Traders also cited cautiousness ahead of Wednesday’s US crude supply data. Analysts were predicting a rise in US crude stocks, currently running near three-year highs, when the US Energy Information Agency releases fresh data for the week to April 1. Last week, EIA data revealed US commercial crude supply rose by 5.4m barrels to nearly 315m barrels and consensus analyst forecasts were looking for today’s figure to show a 2.3m-barrel rise.

Traders said any rise in oil prices would most likely be triggered by a surprise decline in stock levels as the peak season approaches. Traditionally, demand grows in the “driving” season from the Memorial holiday at the end of May to September’s Labour Day. Strengthening demand and recent refinery problems have raised concerns over shortfalls.

Gold prices moved higher on Tuesday to trade at $424.65/425.40 a troy ounce by late-afternoon in London after a seven-week low of $422.25 an ounce on Monday.

Bullion has lost about 5 per cent due to the firming dollar since a 2005 high of $448 on March 11. But dealers said physical demand would support the market at the $420 an ounce level and that any continuing rise in oil prices could boost gold prices as investors looked to hedge against inflation.

Financial Times