Monday, February 27, 2012

Oil falls after recent surge despite supply fear

By Robert Gibbons


NEW YORK (Reuters) - Oil prices pulled back on Monday after a string of higher settlements as concerns that high oil prices might curb economic growth, along with the stronger dollar, countered supportive fears about Iran and potential supply disruptions.

Crude futures extended losses to more than $2 in post-settlement trading after Brent ended a string of five consecutive higher finishes and U.S. crude a string of seven straight higher closes.
The Group of 20 finance ministers and central bankers said on Sunday they were "alert to the risks of higher oil prices" and discussed at length the impact that sanctions on Iran will have on crude supplies and global growth.

The G20 officials also said that they welcomed a commitment from producer countries to ensure oil supplies.

The dollar index .DXY strengthened and the euro eased against the U.S. currency, even as the Japanese yen recovered from a nine-month low reached intraday against the dollar. A stronger dollar can weigh on dollar-denominated oil by making it more expensive for consumers using other currencies.

"The energy complex is pulling back about 1 percent ... partially on a softening in the equities and euro," Jim Ritterbusch, president at Ritterbusch & Associates, said in a note.

"Weekend G20 meetings also prompted some selling amidst some reluctance to provide more European bailout packages," Ritterbusch added.

Brent April crude fell $1.30 to settle at $124.17 a barrel, but falling as low as $123 post-settlement. Brent ended at a near 10-month peak above $125 a barrel on Friday.

Brent remained on pace to post an 11 percent gain for February and is up nearly 16 percent on the year after a 13.3 percent gain in 2011, raising fears of strains on some of the world's fragile economies, particularly in Europe.

U.S. April crude fell $1.21 to settle at $108.56 a barrel, but slipping to $107.27 in post-settlement trading.

U.S. crude is on pace for a 9 percent gain in February and is up nearly 11 percent in 2012 after rising 8.2 percent last year.

Brent's premium to U.S. crude ended little changed at $15.61 based on settlements, having recovered after falling below $15 intraday.

The spread felt pressure after TransCanada Corp (TRP.TO) said it intends to build the southern leg of its Keystone XL crude oil pipeline, running to Gulf Coast refineries, skirting a full-blown federal review and helping move crude out of the bottlenecked Cushing, Oklahoma, storage hub.

The relative strength index (RSI) for both Brent and U.S. crude retreated under 70 intraday, after starting Monday well above that level. An RSI above 70 signals an overbought condition to investors watching technical indicators.

Total trading volumes were tepid, with U.S. crude turnover 4 percent under and Brent volume 7 percent under their 30-day averages with under an hour left in post-settlement trading.

European equities fell, hit by concern about rising oil prices denting economic growth as Greece's debt troubles continued to unsettle investors. .EU

U.S. equities opened lower after the G20 told Europe it must commit more money to fight the European Union debt crisis before seeking broader assistance, but sliding oil prices helped equities to recover.

The benchmark S&P 500 index closed at its highest level since mid-2008, extending gains for a third straight session, as oil's price slip boosted energy shares and after data showed U.S. pending home sales neared a two-year high in January. .N

Germany's parliament approved a second Greek bailout package despite growing German unease over Greece's ability to implement austerity measures and remain in the euro zone.

Sanctions against Iran over its nuclear program have removed a major supply source for many refiners and investors worry escalating confrontation in the Middle East could disrupt oil flows from other suppliers in the Gulf.
Japan's crude oil imports fell 2.1 percent in January from a year ago and imports from Iran were down 12.2 percent year-on-year, official data showed.

Exports from several smaller producers, including South Sudan, Yemen and Syria, have also been cut off in recent months, tightening supplies to some markets.

But exports from Saudi Arabia and Nigeria have risen and there has also been speculation about a release of U.S. strategic reserves to offset lost Iranian barrels and combat high prices.

(Additional reporting by Gene Ramos in New York, Christopher Johnson in London and Manash Goswami; in Singapore; Editing by Marguerita Choy and Bob Burgdorfer)

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