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Oil Falls on Supply Forecast Amid Budget Talks

Oil fell for a second day as U.S. crude inventories were forecast to increase and as Senate Majority Leader Harry Reid said budget talks in Washington have made little progress.

Prices dropped 0.6 percent as oil supplies probably grew by 350,000 barrels last week, according to analysts surveyed by Bloomberg before an Energy Department report tomorrow. The budget outlook overshadowed data showing more demand for U.S. capital goods and a four-year high in consumer confidence.

“There was a risk-off trade flow today in anticipation that we’ll see a drop in inventories tomorrow,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

Crude oil for January delivery fell 56 cents to settle at $87.18 a barrel on the New York Mercantile Exchange. Prices are down 12 percent this year.

Prices were little changed after the American Petroleum Institute reported U.S. oil inventories rose 1.96 million barrels to 373.1 million last week. The January oil contract traded at $87.36 a barrel at 4:59 p.m. versus $87.38 before the report’s release.

Brent oil for January settlement declined $1.05, or 0.9 percent, to end the session at $109.87 a barrel on the London- based ICE Futures Europe exchange.

Crude inventories probably increased 0.1 percent last week to 374.8 million, according to the median estimate of 11 analysts in the Bloomberg survey. Stockpiles of gasoline and distillate fuels were also expected to rise.

Oil Output

Oil production gained for an 11th week to 6.71 million barrels a day in the seven days ended Nov 16, an 18-year high, last week’s Energy Department report showed. Production has increased for 11 weeks, the longest stretch of gains since at least 1990.

A combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations in states including North Dakota, Texas and Oklahoma. North Dakota’s output rose 31 percent this year through August, according to the department.

Oil also fell amid the ongoing budget debate in Washington and concern about the so-called fiscal cliff. Congress returns from the Thanksgiving recess this week, seeking a budget deal to avoid $607 billion of automatic tax increases and spending cuts from kicking in next year.

Democrats and Republicans have made little headway in negotiations, Reid, a Nevada Democrat, told reporters today in Washington.

Tax Disagreement

While Republicans favor raising federal tax revenue by limiting deductions, Democrats have pushed for higher rates on upper-income earners. The Congressional Budget Office has said a failure to avoid the fiscal cliff could lead to a recession and a jobless rate of about 9 percent, compared with the October rate of 7.9 percent.

Crude rose earlier as consumer confidence rose to the highest level in more than four years in November and demand for goods such as machinery and electronics rose last month.

The consumer confidence index climbed to 73.7, the highest level since February 2008, figures from the New York-based Conference Board showed today. Bookings for non-defense capital goods excluding aircraft, a proxy for future business investment, rose 1.7 percent in October, the most since May, the Commerce Department reported today.

“The recent data paints a picture of modest growth,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant.

Earlier, European finance ministers eased the terms on emergency aid for Greece in the latest bid to keep the 17-nation euro intact.

Greek Aid

The finance chiefs cut the rates on bailout loans, suspended interest payments for a decade, gave Greece more time to repay and engineered a bond buyback. The country was also cleared to receive a 34.4 billion-euro ($44.7 billion) loan installment in December.

“There’s some optimism about the Greek bailout but that’s based on the most bullish possible outcome,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending.

Electronic trading volume on the Nymex was 326,743 contracts as of 4:44 p.m. Volume totaled 287,893 contracts yesterday, 45 percent lower than the three-month average. Open interest was 1.51 million.

To contact the reporters on this story: Moming Zhou in New York at mzhou29@bloomberg.net; Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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