Oil edged lower after capping the longest run of gains in two years, with one technical indicator signaling the rally may be overdone. Futures in New York have surged more than 12% over the past eight sessions as oil stages a robust recovery from the depths of the Covid-19 pandemic amid a tightening market. The rapid gain has driven prices to the highest level in a year, but also pushed crude’s 14-day Relative Strength Index firmly into overbought territory, signaling a correction is due.
Oil’s rebound accelerated after Saudi Arabia pledged to deepen output cuts and as prompt timespreads firmed in a bullish backwardation structure, helping to unwind global stockpiles built up during the outbreak. There are still concerns that the virus may curb near-term fuel demand, with China’s air traffic falling sharply ahead of the Lunar New Year holiday after a resurgence in some areas.
“A correction was long overdue,” said Jeffrey Halley, a senior market analyst at Oanda Asia Pacific. “The risks are that oil has a technical pullback and that could see oil drop as much as 5% before we return to business as normal.”
| PRICES |
|---|
|