London: Oil slipped back from 18-month highs around $87 on Wednesday, taking a breath after two weeks of gains.
Reports of a larger-than-expected drop in US gasoline stockpiles helped bolster the market, suggesting fuel demand was rebounding as the economic outlook improves in the world’s biggest oil consumer.
But technical charts indicated oil might be due for a period of consolidation after a rise of around 9 percent in seven trading days that left the 14-day relative-strength indexes (RSIs) around 70, suggesting markets were modestly overbought.
US light crude futures for May were 30 cents lower at $86.54 by 1:50pm, down from Tuesday’s intraday peak of $87.09, the highest since October 2008. London ICE Brent fell 12 cents to $86.03.
“We think the current rally in crude, although still looking formidable on the charts, is getting long in the tooth, and due for a modest pullback, especially if the dollar regains its strength in the wake of continued eurozone jitters,” said Edward Meir, senior commodities analysts at brokers MF Global.
“We suspect that commodities will have a hard time avoiding the ‘blow-back´ that a stronger dollar would generate.”
The dollar was slightly stronger against a basket of currencies in early European trade on Wednesday.
Oil and commodities often move inversely to the dollar as they are priced in the US currency on international markets.
Gasoline inventories in the US fell a larger-than-expected 3 million barrels last week, the industry-funded American Petroleum Institute (API) said on Tuesday.
US crude oil stockpiles increased less than expected, according to the API, adding 1.1 million barrels in the week ended 2 April.
But inventories of distillates, comprising heating oil and diesel, rose unexpectedly as refineries processed more crude, the API said.
Stock figures from the US government’s Energy Information Administration (EIA), generally considered more reliable than industry data, are due at 10:30am EDT.
Crude inventories were expected to have climbed 1.8 million barrels for their 10th consecutive weekly gain, a Reuters survey showed, while gasoline supplies probably fell 800,000 barrels.
Tuesday’s release of minutes from the Fed’s last policy meeting indicated the US central bank could maintain ultra-low interest rates for even longer than investors have anticipated if the economic outlook worsens or inflation drops, boosting confidence that demand for commodities will continue to grow.
European shares were flat in early trade on Wednesday after hitting an 18-month closing high on Tuesday, with gains capped by doubts about Greece’s ability to emerge from crisis.
Oil prices traded in a range of less than $15 and below $84 a barrel in the first quarter, surpassing that level on 1 April for the first time since 2008.
Members of the Organization of the Petroleum Exporting Countries have said they favour prices between $70 and $80.
For a Reuters column on the challenges that Opec may face as prices surpass that level, click