Oil fell for the first time in eight days after the Group of 20 nations rebuffed calls from euro countries to increase international lending resources, adding to concern that Europe's debt crisis will slow the economy.
Prices dropped as much as 1.4 per cent as the G-20 said Europe needs to review its financial firewall before the group considers boosting the International Monetary Fund's resources. IMF Managing Director Christine Lagarde warned the world economy is "not out of the danger zone" amid fragile financial systems and rising oil prices.
"You have the IMF warning about the world economy and the worries about Europe are starting to re-emerge," said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. "The market went a little too far on the upside and it's now pulling back a bit."
Oil for April delivery fell 96 cents, or 0.9 per cent, to $US108.81 a barrel at 12:42 p.m. on the New York Mercantile Exchange. The contract settled at a nine-month high on Feb. 24. Prices have increased 10 per cent this year.
Brent oil for April settlement declined $US1.58, or 1.3 per cent, to $US123.89 on the London-based ICE Futures Europe exchange.
The G-20 rebuffed German-led calls to help Europe fight its debt crisis, saying yesterday in Mexico City that any decision on outside aid hinges on the euro area delivering more financial firepower within two months.
Lagarde said that G-20 countries "must now strengthen resilience to further shocks that could result from still fragile financial systems, high public and private debt, and higher world oil prices."
RSI Over 70
Crude also slipped after the 14-day relative strength index for front-month contracts climbed to 76.9 on Feb. 24, according to data compiled by Bloomberg. A reading above 70 indicates futures have risen too quickly and further gains aren't sustainable. Today's 14-day RSI is about 72.
"The market has gone a little too high too fast," said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. "Technical indicators, the RSI for example, are pointing to a little bit overbought."
Crude reduced losses as equities gained after data showed an increase in US home sales and as TransCanada Corp. said it will build a $US2.3 billion stand-alone pipeline from the oil storage hub at Cushing, Oklahoma, to the Gulf Coast.
The index of pending home resales climbed 2 per cent in January, the National Association of Realtors said. The Standard & Poor's 500 Index rose 0.2 per cent, erasing a loss of 0.8 per cent.
Spread Narrows
Nymex-traded West Texas Intermediate's discount to Brent crude narrowed for a third day as Calgary-based TransCanada said in a statement that it expects the line to begin services as soon as the middle of 2013.
The Keystone XL project, which would expand the amount of oil that can be shipped from Canada and extend the system to Texas refineries, was rejected by the Obama administration in January because of concerns about the pipeline's path through portions of Nebraska. The planned segment from Cushing to Port Arthur, Texas, wouldn't require State Department approval.
"This is raising hopes that the bottleneck from Cushing to the Gulf Coast is coming to an end," said Phil Flynn, an analyst at PFGBest in Chicago. "The housing number is pretty encouraging."
WTI's discount to Brent narrowed 62 cents to $US15.08 a barrel. The spread was $US19.02 on Feb. 6. It reached $US28.08 in intraday trading on Oct. 14 amid a glut of crude in the central US that pushed crude inventories at Cushing as high as 41.9 million barrels last year.
Hedge funds and other large speculators raised wagers on rising prices in futures and options combined by 11 per cent to 259,162 in the week ended Feb. 21, according to the Commodity Futures Trading Commission's Commitments of Traders report. Bets increased 26 per cent over two weeks, the biggest gain since March.