Brent crude fell below $110 a barrel on Monday, dipping further from last week’s two-and-a-half month high as worries over Ukraine eased slightly after its presidential election.
Resistance levels for Brent and U.S. crude, or West Texas Intermediate (WTI), on technical charts are also keeping a lid on gains. Market activity is expected to be limited as the U.S. and UK markets are closed for holidays.
July Brent crude was at $109.88 a barrel, down 66 cents, by 0551 GMT. U.S. crude futures for July delivery edged down 37 cents to $103.98 a barrel, after settling on Friday at the highest since April 21.
Brent rose briefly past a resistance level at $110.65 last week while WTI has traded near its resistance of $105, said Ric Spooner, chief analyst at CMC Markets in Sydney.
“There’s a bit of a caution here ... markets are struggling to get past the chart resistance,” he said.
Money managers raised their net long U.S. crude futures and options positions in the week to May 20, the U.S. Commodity Futures Trading Commission (CFTC) said, ahead of peak summer demand. The Memorial Day holiday on Monday usually marks the start of the U.S. driving season.
“Although demand is going to pick up during the driving season, inventories are very high and supply capacities are very high so there shouldn't be too much pressure on markets,” Spooner said.
Oil supply growth is expected to exceed demand this year, spurring softer prices in the second quarter before rebounding in the second half of the year on seasonally stronger consumption, Morgan Stanley analysts led by Adam Longson said in a note.
Barring new supply outages, global oil capacity will rise by 1.8 million barrels per day (bpd) this year, the fastest growth in a decade, the bank said, while product demand will grow by 1.1 million bpd.
Fighting in Ukraine and production cuts in Libya and South Sudan pushed Brent up to a 2-1/2-month high last week.
On Sunday, a decisive win for billionaire Petro Poroshenko in Ukraine’s presidential election raised hopes of political stability in Ukraine - a main gas supply route to Europe from Russia - although a fraught mission to quell pro-Russian rebels and steer the fragile nation closer to the West await him.
“I don’t think the market really factored in any new risks in there,” CMC’s Spooner said.
Libya’s El Sharara and El Feel oilfields remain shut, a spokesman for state-run National Oil Corp (NOC) said on Sunday, almost two weeks after the government said protests at the western fields had ended.
OPEC production is likely to decline this year despite an addition of 400,000 bpd of new capacity led by Iraq and Saudi Arabia, Morgan Stanley analysts said.
“Disruptions in Libya are likely to persist and we see little hope for a material increase in Iranian oil exports during 2014,” they said.
Statoil said on Friday that it has resumed some production at the Snorre B platform in the North Sea.
Sabre-rattling between Iraq and Kurdistan over oil exports also heightened tensions in the region.
Iraq filed for arbitration against Turkey on Friday to stop exports of oil from Kurdistan after European markets bought the first load of oil piped from the autonomous region. Kurdistan said this was a “hollow threat” that will fail.SHOW MORE