Oil Looks 'Overbought' as Brent Nears $110

Benchmark Brent crude oil prices may test $110 a barrel this week, extending last week's rally to fresh multi-month highs amid lingering fears of Middle East supply disruptions and expectations of improving U.S. demand after forecast-beating jobs data, according to CNBC's latest survey of oil market sentiment.

In some degrees, Brent nears $110 a barrel means that perhaps overmuch oil is introduced to the fuel dispenser at the gas station.

Still, the risk of a correction lower in oil prices is getting stronger. A minority of respondents in this week's survey warned last week's 5 percent rally in Brent and 6.7 percent jump in U.S. crude futures seems over-extended and doesn't reflect still subdued fundamentals of only modestly improving demand. The U.S. fuel stockpiles - although in seasonal decline - are also above the upper limit of the average range for this time of year, they added.
Almost three-quarters of respondents polled, or eight out of 11 (about 73 percent), said prices will rise this week while the remaining three, or about 27 percent, said a correction is due.

"I expect that the run-up is almost over," said Mark Waggoner, President of Excel Futures, Inc. in Bend, Oregon. "Look for WTI (West Texas Intermediate, the crude grade underlying U.S. futures) to break back below $100 next week. Demand is still not as high as it could be. The push to fill retail outlets should be done now (ahead of the high-demand U.S. summer driving season, which runs from runs from around late May to early September)."

Gasoline is likely to lead the broader energy complex lower, Waggoner added, on expectations "stockpiles will jump because utilization is so high. Look for a major drop in next 30 days."

Others believe an improvement in U.S. consumer confidence generated by the housing market recovery will boost gasoline demand this summer.

"Historically, the summer months see an average gain of about $10, calculated by looking at average returns using data from 1983," said Dhiren Sarin, Chief Technical Strategist for Asia-Pacific at Barclays Capital in Singapore. "The seasonal backdrop is also favorable. We prefer buying the dips and would look for the $103-103.50 area to come under threat" for WTI.