Oil futures edged higher on Tuesday in volatile trading in the closely watched spread between international benchmark Brent and U.S. crude oil futures.
Brent's premium to U.S. oil futures , which had narrowed sharply last week and briefly inverted on Friday, weakened for a second straight day in whipsaw trading that saw swings of nearly $1.75.
The spread, which settled at $1.21 a barrel on Monday, narrowed to $1.06 during European hours before widening out to $2.68, near the 14-day moving average, in early U.S. activity. It closed at $1.19 as U.S. crude, also known as West Texas Intermediate, staged a late rally relative to Brent.
"You are seeing a little bit of profit taking on the spread," said Gene McGillian, an analyst at Tradition Energy in Stamford, Connecticut.
The Brent-WTI spread trade has gripped markets this month, narrowing from near $6 at the start of July and over $23 a barrel in February on expectations new pipeline capacity will alleviate a glut of oil at the Cushing, Oklahoma delivery point for the U.S. crude contract by shipping it to the Gulf Coast.
Walter Zimmermann, chief technical analyst for United-ICAP in Jersey City, New Jersey, said that it was still early to tell if the move marked a reversal of the narrower spread, but added it could be poised to move in further.
"The bigger picture suggests that WTI just completed a bull market correction, then almost certainly the WTI-Brent spread is heading higher."
Front-month September Brent crude oil traded up 27 cents to settle at 108.42 a barrel.
Brent rose early on news that China remains committed to steering its economy towards consumption as the main growth driver and will fine-tune policies to deal with any prolonged slowdown.
September U.S. crude futures, which became the front-month contract on Tuesday, rose 29 cents to settle at $107.23 a barrel.
U.S. crude had been showing signs of being overbought, trading over 70 on the 14-day relative strength index, but dipped below that level on Monday. In late Tuesday activity, it again touched 70, the level technicians say generally indicates a commodity has been overbought.
Weekly U.S. inventory data from the American Petroleum Institute and the U.S. Energy Information Administration, was expected to show the fourth-straight week of declines in commercial crude inventories, according to a Reuters poll of 10 analysts.
Refiners on the Gulf Coast have been cranking up crude throughput this month as exports support margins. The API and EIA data will be released late Tuesday and early Wednesday, respectively.