Crude Drops From 1-Week High Amid Disagreement on Budget

Oil slid from the highest level in a week as U.S. lawmakers disagreed on steps to avert automatic spending cuts and tax increases that take effect on Jan. 1 and threaten to curb economic growth and fuel demand.

Futures dropped as much as 0.6 percent in London after rising the most in three 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 can’t offset full effects of the so-called fiscal cliff, Chairman Ben S. Bernanke said.

“Market participants are jittery over the fiscal cliff even though experience shows that agreement won’t come until five minutes before the deadline,” Thorbjorn Bak Jensen, an oil market analyst at Global Risk Management in Middelfart, Denmark, said by telephone. “The Fed is printing money, and a lot of it is already priced in.”

Brent for January settlement on the London-based ICE Futures Europe exchange declined as much as 65 cents to $108.85 a barrel and was at $108.97 at 12:49 p.m. London time. It climbed 1.4 percent yesterday, or $1.49 a barrel, the most since Nov. 19. The European benchmark crude has advanced 1.5 percent this year.

West Texas Intermediate crude for January delivery on the New York Mercantile Exchange fell 60 cents to $86.17 a barrel in electronic trading. The contract advanced 98 cents to $86.77 yesterday, the highest close since Dec. 5. New York-traded WTI has declined 13 percent in the year.

Brent was at a premium of $22.83 to WTI.

Candid Discussion

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’s Rollover

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 target 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.

El-Badri, speaking today at a news conference in the Austrian capital, urged members to pare output and adhere to the group’s production ceiling.

“Supply side is clearly dominating since it’s expected to be stronger than demand growth in 2013,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG (RBI) in Vienna. “No surprise that OPEC left the ceiling unchanged, but it’s important that Saudi Arabia sticks to the quota.”

To contact the reporters on this story: Ramsey Al-Rikabi in Singapore at ralrikabi@bloomberg.net; Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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