HONG KONG (Jan 16): As oil rallies and hedge funds increase their bullish bets on crude to the highest in more than a decade, some indicators signal futures may face hurdles to advance further.
While futures in New York were up 0.2 percent, their 14-day Relative Strength Index shows they have been in overbought territory since the beginning of last week. West Texas Intermediate as well as London’s Brent crude are approaching the 50 percent Fibonacci retracement of a drop from 2014, another line of resistance. Meanwhile, money managers boosted their net-long positions in WTI to the highest level in data going back to 2006.
“We are becoming increasingly cautious about oil trending higher, especially when you look at the technical levels, prices are already in overbought territory,” said Barnabas Gan, an economist at Oversea-Chinese Banking Corp. in Singapore.
“There’s a good probability that U.S. production will grow again, simply because of the fact that oil prices are so strong.”
Oil is extending a two-year rebound as the Organization of Petroleum Exporting Countries and its allies trim production to drain a global glut. While rising prices may boost U.S. output, Citigroup Inc., Societe Generale SA, and JPMorgan Chase & Co. predict supply curbs may be wound down from the middle of the year, before their scheduled end in December, as the market re-balances.
WTI for February delivery was at $64.43 a barrel on the New York Mercantile Exchange, up 13 cents, at 7:40 a.m. in London. There was no settlement Monday because of the Martin Luther King Jr. holiday in the U.S., and all transactions will be booked Tuesday. Futures closed at $64.30 on Friday, the highest level since December 2014.
Brent for March settlement lost 33 cents to $69.93 a barrel on the London-based ICE Futures Europe exchange after adding 0.6 percent on Monday to close at the highest since December 2014. The global benchmark crude traded at a premium of $5.59 to March WTI.
Hedge funds increased their WTI net-long position -- the difference between bets on a price increase and wagers on a drop -- by 10 percent to 437,770 futures and options during the week ended Jan. 9, according to figures from the U.S. Commodity Futures Trading Commission on Friday.