BLBG:Oil Drops From One-Week High Amid Disagreement on U.S. Budget
Oil slid from the highest level in a week as U.S. lawmakers disagreed on measures to avert automatic spending cuts and tax increases known as the fiscal cliff that threaten to curb economic growth and fuel demand.
Futures dropped as much as 0.5 percent in New York after rising the most in two weeks yesterday on a plan by the Federal Reserve to expand its monetary stimulus. Republicans have “some serious differences” with President Barack Obama’s budget proposals, House Speaker John Boehner told reporters in Washington. The Fed’s bond purchases cannot offset the full effect of the fiscal cliff, Chairman Ben S. Bernanke said.
“People are using the rally as an opportunity to take profit,” said Jeremy Friesen, a commodity strategist at Societe Generale SA in Hong Kong. “There isn’t anything new in what the Fed is doing. It has to be aggressive, but can’t overcome the fiscal cliff.”
Crude for January delivery fell as much as 39 cents to $86.38 a barrel in electronic trading on the New York Mercantile Exchange and was at $86.52 at 4:07 p.m. Singapore time. The contract advanced 98 cents to $86.77 yesterday, the highest close since Dec. 5. Prices are down 12 percent this year, set for the first annual decline since 2008.
Brent oil for January settlement on the London-based ICE Futures Europe exchange declined as much as 64 cents, or 0.6 percent, to $108.86 a barrel. It climbed 1.4 percent yesterday, the most since Nov. 19. The European benchmark crude was at a premium of $22.79 to New York-traded West Texas Intermediate.
‘Bit of a Base’
The prospect of more than $600 billion in spending cuts and tax increases is “clearly” having an effect on the economy, Bernanke said yesterday. Boehner said he and the president were frank about “how far apart we are” when they spoke in a phone call on Dec. 11.
Oil rose yesterday after the Federal Reserve said it will buy $45 billion a month in Treasury securities to boost economic growth in the U.S., the world’s biggest crude consumer. The purchase will be in addition to $40 billion a month of mortgage- debt the central bank is currently buying.
The decision “creates a bit of a base” for commodity prices, said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “It means that the pullback in prices from these levels will be fairly shallow.”
Oil in New York has technical support along an upward- sloping trend line on the daily chart, around $85.80 a barrel today, according to data compiled by Bloomberg. Futures yesterday rebounded from this line, which connects the intraday lows of June and November. Buy orders tend to be clustered near chart-support levels.
U.S. Stockpiles
The Brent-WTI spread widened yesterday for a fourth day to $22.73, the most since Nov. 28, after the Energy Department reported a surge in stockpiles at Cushing, Oklahoma, the delivery point for the U.S. contract. Supplies gained 1.2 million barrels to 46.8 million in the week ending Dec. 7, the highest since June 29.
Inventories nationwide increased 843,000 barrels, the report showed. They were forecast to decline 2.5 million barrels, according to the median estimate of 11 analysts surveyed by Bloomberg News.
Gasoline stockpiles climbed 5 million barrels to 217.1 million, more than double a median 2 million gain forecast in the survey. Distillate fuel inventories, including diesel and heating oil, were up 3 million barrels at 118.1 million, beating a 1.1 million estimate.
OPEC kept its production target unchanged for a second time this year as members judged prices to be sufficiently high. The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s crude, maintained its output quota at 30 million barrels a day, a level it now exceeds by about 1 million. The 12-member group failed to elect a new secretary- general at a meeting yesterday in Vienna and agreed to extend the term of Abdalla El-Badri for one more year.
To contact the reporters on this story: Ramsey Al-Rikabi in Singapore at ralrikabi@bloomberg.net; Yee Kai Pin in Singapore at kyee13@bloomberg.net
To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net
