BLBG:Oil Trades Near Lowest Level in a Week on U.S. Budget Concern
Oil traded near the lowest level in almost a week in New York on concern U.S. lawmakers may fail to avert spending cuts and tax increases that threaten the economy of the world’s biggest crude consumer.
Futures were little changed after sliding 1.6 percent on Dec. 21, the biggest drop in more than two weeks. Republicans and Democrats probably won’t reach an agreement on a budget deal by year-end to avoid triggering more than $600 billion in automatic measures known as the fiscal cliff, Senator Joseph Lieberman said on CNN’s “State of the Union” program.
“Investors are just nervous about exposure to anything at the present time and hence are selling things like oil,” said Gavin Wendt, a senior resource analyst and founder of Mine Life Pty in Sydney. “Oil is an industrial commodity and potentially once the situation with the fiscal cliff is resolved, we may see an increase.”
Crude for February delivery was at $88.52 a barrel, down 14 cents, in electronic trading on the New York Mercantile Exchange at 1:18 p.m. Singapore time. Prices fell $1.47 to $88.66 a barrel on Dec. 21, the biggest decline since Dec. 6. The volume for all West Texas Intermediate futures traded today was about 46 percent lower than the 100-day average.
Brent for February settlement was at $108.66 a barrel, down 31 cents, on the London-based ICE Futures Europe exchange. The number of contracts changing hands was about 12 percent less than the 100-day average. The European benchmark crude was at a premium of $20.17 a barrel to WTI, from $20.31 on Dec. 21.
Brent-WTI Spread
WTI has dropped 10 percent in 2012 as the U.S. shale boom deepened the glut at Cushing, Oklahoma, America’s largest storage hub and the delivery point for New York futures. That has left it at an average discount of $17.45 a barrel to Brent this year, compared with a premium of about 7 cents in the five years through 2010. Brent, the benchmark grade for more than half the world’s crude, has climbed 1.2 percent this year.
“I would imagine the spread between Brent and WTI to continue to diminish,” said Wendt, who forecast it could go as low as $10 a barrel next year.
Failing to avoid the fiscal cliff would push the U.S. into recession for the first half of 2013, according to the nonpartisan Congressional Budget Office. President Barack Obama on Dec. 21 urged leaders of both parties to put together an interim bill to keep taxes from rising on middle-income Americans as they work on a more comprehensive package. House Speaker John Boehner failed to win support from his caucus for his proposal that would have extended tax cuts on incomes below $1 million.
Funds Bet
“Everybody is watching the fiscal crisis in the U.S.,” Robin Mills, the head of consulting at Dubai-based Manaar Energy Consulting and Project Management, said in a telephone interview yesterday. “There seems to have been a breakdown of progress at the end of last week and the oil markets reflected this negatively.”
Hedge funds boosted bullish bets on WTI oil by the most in more than four months before the budget talks stalled. Money managers raised net-long positions by 19 percent in the seven days ended Dec. 18, according to the Commodity Futures Trading Commission’s Dec. 21 Commitments of Traders report. It was the largest gain since the week ended Aug. 7.
Oil in New York has technical resistance along its upper Bollinger Band, around $90 a barrel today, according to data compiled by Bloomberg. Futures fell on Dec. 21 after settling above the indicator the previous day, signaling prices are overbought. Sell orders tend to be clustered near chart- resistance levels.
International demand for crude matches supply and the global market is stable, Saudi Arabian Oil Minister Ali al-Naimi told reporters in Cairo on Dec. 21.
Members of the Organization of the Petroleum Exporting Countries estimate that prices will stabilize above $100 a barrel in 2013 and OPEC will hold an emergency meeting if they fall below that level, Iran’s oil ministry said on its website yesterday, citing Oil Minister Rostam Qasemi.
To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.net
To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net
