Oil prices fell a second day on Tuesday as investors gauged the threat to demand from high prices against supply concerns and anticipation of more liquidity injections from the European Central Bank that were expected to support petroleum futures.
Analysts and traders said the string of higher settlements last week that put Brent crude's settlement near a 10-month high above $125 a barrel on Friday had sparked concerns about the effect on global demand for oil, especially in the struggling economies of Europe.
"There is some concern growing that high oil prices may impact the economy and oil demand in future," said Carsten Fritsch, an analyst at Commerzbank in Frankfurt. "That is leading to profit-taking, which is not surprising given the huge build in speculative net long positions in recent weeks," he added.
Fritsch was referring to US Commodities Futures Trading Commission data released Friday showing that net long positions in US crude futures had reached the highest levels since May 2011. Brent April crude fell $1.27 to $122.90 a barrel by 12:41 pm EST (1741 GMT), having swung from $122.53 to $123.95. Brent remained on pace to post an 11 percent gain for February.
US April crude was down 46 cents at $108.10 a barrel, having traded from $107.62 to $108.79. US front-month crude was still on pace to end the month up 10 percent. Brent's premium to US crude narrowed to under $15 a barrel intraday, after ending Monday little changed at $15.61 based on settlements.
Ahead of March contract expirations on Wednesday, US gasoline and heating oil futures fell even more than crude on a percentage basis. The relative strength index (RSI) for both Brent and US crude sat just under 70, after recently nearing 80. An RSI above 70 signals an overbought condition to investors watching technical indicators. Total trading volumes were lacklustre, with US crude turnover 46 percent under and Brent volume 13 percent under their 30-day averages during the noon hour in New York.
The index that tracks tonnage hauled by American trucks fell in January after logging the largest increase in 13 years in December, the American Trucking Associations (ATA) said, adding another cautionary signal regarding the economy at the start of 2012.A double-digit price increase thus far in 2012 has prompted the International Monetary Fund to flag oil as a rising threat to the global economy and Group of 20 officials meeting last weekend also expressed concern about the effect on economic growth. Investors across markets await a second tranche of liquidity from the ECB expected on Wednesday as part of its Long-Term Refinancing Operation (LTRO).
Anticipation of the ECB liquidity infusion sent prices for key industrial feedstock copper to a more than two-week peak on Tuesday. Iran's dispute with the West over Tehran's controversial nuclear program continues to simmer, along with concerns about the threat of potential supply disruptions in the region.
Iran said on Tuesday that it expected talks with the UN's International Atomic Energy Agency (IAEA) to continue, expressing optimism that talks would proceed in the right direction. The IAEA has said that no further talks were scheduled given Iran's unwillingness to tackle the allegations of research with military nuclear applications during earlier talks.
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