LONDON--Crude-oil futures fell heavily in Friday morning trade as the market remains wed to negotiations on Capitol Hill over how best to reduce the U.S. debt.
Late Thursday, the high-stakes talks were thrown into disarray after House Speaker John Boehner withdrew his plan and dissolved the House for Christmas, a move described by Olivier Jakob, or Petromatrix, as a "late fiasco."
Failure to find compromise would automatically trigger some $500 billion in spending cuts and tax increases in January--the "fiscal cliff'--that have the potential to send the U.S., the world's largest crude-consuming economy, into recession with consequent ramifications for oil demand.
At 1040 GMT, the front-month February Brent contract on London's ICE futures exchange is down 84 cents at $109.36 a barrel.
The front-month February light, sweet crude contract on the New York Mercantile Exchange is trading $1.33 lower at $88.80 a barrel.
Both contracts pulled back after a week of solid gains. Dennis Gartman, publisher of the Gartman Letter, said that term structures moved bearishly even as prices were rising, "suggesting that the strength was transitory and was very likely short-covering rather than new buying."
Despite Friday morning's losses both contracts' broad ranges continue to hold amid "some degree of uncertainty," said Andrey Kryuchenkov of VTB Capital, who said that these should remain in place for the expected quiet trading week ahead.
Looking ahead to 2013, Merrill Lynch forecast an average Brent price of $110 a barrel, with the potential for the contract to touch $120 a barrel in the first half of the year. For WTI, Merrill expects an average price of $90 a barrel but with a risk of a substantial fall, to around $50 a barrel, over the next 24 months to force either a slowdown in U.S. supply growth or a change in the country's export rules.
The ICE's gasoil contract for January delivery is down $2.50 at $938.75 a metric ton, while Nymex gasoline for January delivery is down 187 points at 2.7356 cents a gallon.
Write to Ben Winkley at ben.winkley@dowjones.com
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