Oil edged off seven-month highs on Tuesday as profit-taking outweighed economic optimism following strong US home sales data. Pending sales of previously owned homes in the world's top oil consumer shot up by 6.7 percent in April, the biggest monthly gain in 7-1/2 years, sending US equities markets higher.
US crude settled 3 cents lower at $68.55 a barrel after optimism about an economic recovery sent prices to $69.05 earlier, the highest level since early November. London Brent crude rose 20 cents to settle at $68.17 a barrel. "I think basically we've been up seven days in a row and we're seeing a little profit-taking just because of altitude," said Phil Flynn of Alaron Trading in Chicago.
Oil jumped 30 percent in May as expectations that the worst of the global economic crisis may be over lifted equities and commodities markets. US stocks reduced earlier gains in Tuesday afternoon trade as financial shares came under pressure after several companies announced stock offerings. "Crude continues to remain firm in anticipation that green shoots will soon start becoming branches, but I think we need to be cautious in here," said Nauman Barakat, senior vice president at Macquarie Futures USA.
Crude found some support as the dollar hit the lowest level this year against the euro and a basket of currencies, reversing earlier gains, on rising risk tolerance fuelled by views the global economy is on the road to recovery. Opec Secretary General Abdullah al-Badri said oil prices could reach $90 a barrel early next year, adding the producer group would not increase supply until global inventories had been drained.
"The price will go to $80 to $90 maybe at the beginning of 2010," al-Badri told the Reuters Global Energy Summit. Last week, Opec decided to keep production targets unchanged after agreeing a series of deep cuts in 2008 to stem a steep slide in crude oil prices from record highs near $150 a barrel struck last July.
Traders were also awaiting crude and product inventory data to be released by the American Petroleum Institute later Tuesday and the US Energy Information Administration on Friday, which will reflect the Memorial Day holiday weekend that traditionally kicks off the summer driving season.
A revised Reuters survey of analysts forecast weekly US inventory data would show a 1.4-million-barrel decline in crude stocks in the world's top oil consumer for the week to May 29, while gasoline and distillate inventories were seen rising. "Crude futures generally marked time today on profit-taking ahead of the weekly API/EIA statistics. Support continued to emanate from a weakening dollar vis-à-vis the euro and a continued steady tone to the equity markets," said Jim Ritterbusch, president of Ritterbusch & Associates.
Cooler sea temperatures and a possible El Nino prompted the Colorado State University forecast team to reduce its Atlantic storm season prediction on Tuesday to 11 tropical storms, including five hurricanes. The 2009 Atlantic hurricane season officially started on Monday and runs through November 30. Many analysts predicted a softer potential supply impact this year because US stockpiles were brimming.
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