Crude oil futures ease off multi-year highs as investors book profits

Crude oil futures eased in mid-morning trade in Asia Oct. 27 after touching fresh multi-year highs as investors booked profits following a strong overnight session for oil prices that were now reaching into overbought territory.

Builds in US inventory levels for crude oil and refined products also added to pressure on oil prices.

At 10:45 am Singapore time (0245 GMT), the ICE December Brent futures contract was down 50 cents/b (0.58%) from the previous close at $85.90/b, while the NYMEX December light sweet crude contract was 60 cents/b (0.71%) lower at $84.05/b after settling at a fresh seven-year high overnight.

"Likely the weekly build in overall US crude stocks and products in the American Petroleum Institute data [is causing the drop in prices] but I wouldn't set store by it. Expect plenty of price swings through the day," said Vandana Hari of Vanda Insights.

The API late Oct. 26 reported a 2.32 million-barrel build in US commercial crude oil stockpiles last week, running against expectations for a 100,000-barrel draw. Gasoline inventories meanwhile rose by 530,000 barrels, while distillate stocks climbed by 986,000 barrels.

However bearish sentiment was capped by another strong draw in crude oil stocks at the US oil storage hub of Cushing, Oklahoma, which fell 3.73 million barrels in the week, highlighting the ongoing supply tightness in the market. This follows a 2.32 million-barrel draw at Cushing the week before.

Investors will look to the US Energy Information Administration's weekly report due for release later Oct. 27 to confirm the API data.

"Of particular interest will be the Cushing inventory numbers. A similar reading to the API would leave total Cushing stocks at below 30 million barrels. Such a scenario would likely continue to provide strength to WTI time spreads," ING analysts Warren Patterson and Wenyu Yao said in a note.

Nonetheless, crude oil prices have posted gains for the past nine weeks, with the Relative Strength Index on a daily chart for the NYMEX contract showing oil prices sitting squarely in overbought territory. Analysts have said that at current levels, oil prices were due for some profit-taking.

The longer-term narrative, however, remained bullish. With a persistent supply deficit and the ongoing energy crisis not going away soon, oil prices still have room to climb, analysts said.

"The energy crisis could maintain a bullish momentum in crude for the coming days and weeks, interrupted by small pullbacks," said Vanda Insights' Hari.

"The bottom line is that the bullish narrative has taken a strong hold and despite a fair amount of speculative froth in crude, there is nothing on the horizon so far to trigger a correction," she added.