Oil reversed course as a record crude-buying spree by hedge funds spurred concern that prices may be due for a correction after hitting three-year highs.

Futures in New York slipped 0.9 per cent on Tuesday, ending a five-day rally, while prices in London slid to the lowest in a week. Hedge funds last week boosted their bullish bets on crude to record levels, according to the U.S. Commodity Futures Trading Commission and ICE Futures Europe. Now traders are weighing signs crude may be overbought.

“Typically when the boat gets tipped greatly to one side, like it is right now, you get a reversal,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, by telephone. “There’s a lot of technical aspects working against” the price rally, he said.

Crude has surged in the face of OPEC’s commitment to maintaining output curbs until the end of this year and shrinking stockpiles in the U.S. and elsewhere. But the rally has triggered fears that the group could revise the plan or that adherence to the cuts could start to falter. In recent days, several ministers of key OPEC countries called for the group to stay the course despite the recent highs.

OPEC and its allies shouldn’t make any hasty decisions given the recent increase in the crude price and the pact should continue on, Russian Energy Minister Alexander Novak told reporters in Moscow.

West Texas Intermediate for February delivery fell 57 cents to settle at US$63.73 a barrel on the New York Mercantile Exchange. There was no settlement Monday because of the Martin Luther King Jr. holiday in the U.S., and all transactions will be booked Tuesday.

Taking a Breather

Brent for March settlement dropped US$1.11 to end the session at US$69.15 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of US$5.48 to March WTI.

“This is really just a little bit of consolidation in oil pricing. Traders are taking a bit of a breather,” Michael Loewen, a commodities strategist at Scotiabank in Toronto, said by telephone. “The fundamentals are still very positive, so there’s no reason to panic. A slight pull-back should help the market continue on.”

While price gains might encourage producers to lift output, it won’t significantly affect the price of the most immediate futures, according to a report from Goldman Sachs Group Inc. on Tuesday. A decline in global inventories, coupled with demand growth and OPEC nations adhering to output cuts, has helped to raise prices and the advance means that futures may exceed the bank’s forecast, Goldman said.

But a key technical indicator calls for caution. WTI’s 14-day relative strength index has lingered above 70 since last week, signaling the commodity is overbought.

Hedge funds increased their WTI net-long position by 10 per cent to all-time high of 437,770 futures and options during the week ended Jan. 9, according to data from the CFTC. The Brent net-long position increased 1.5 per cent to a record 574,152 contracts, ICE Futures data showed.