(Bloomberg) — Oil prices fell below $77 a barrel after last week’s rally pushed futures into overbought territory. At the same time, ample oil supplies outweighed military escalation in the Middle East.
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The market was already poised for a correction after West Texas Intermediate was overbought in the past two sessions, but OPEC+ exports are further weighing on prices. Market intelligence firm Kpler said overall crude oil shipments by producer alliances were nearly flat in January, suggesting promised production cuts will be slow to materialize.
But traders say a strong U.S. response to the escalating conflict in the Middle East could push oil prices higher. The White House is considering possible action after three soldiers were killed in a drone attack by Iranian-backed militants, but Tehran has sought to distance itself from the attack. This follows a Houthi missile attack on Friday on a ship carrying Russian fuel from the Trafigura Group, making it the most serious attack yet on a ship carrying energy products.
U.S. futures prices have risen about 7% this month as the conflict has escalated, but ample market supply has kept prices down. The attack in the Red Sea has caused some cargo to be rerouted and freight rates to rise, but it has not yet caused any shortages or affected production.
Last week, money managers covered their short positions, reducing bearish bets to the most since April. However, long positions increased only slightly, which traders said showed a lack of conviction in the recent rally.
“We need to get people to believe in the upside and not just be afraid of losing money,” Rebecca Babin, senior energy trader at CIBC Private Wealth, said in a phone interview.
Read more: Here's what analysts say about oil after Middle East attacks
–With assistance from Alex Longley.
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