Oil Holds Steady in New York on U.S. Budget Deadlock

Oil was little changed in New York amid concern that U.S. lawmakers will miss a year-end budget deadline, threatening to weaken the American economy.

Futures traded in a 66-cent-a-barrel range as Democrats and Republicans discussed how to avoid more than $600 billion in tax gains and spending cuts, known as the fiscal cliff, which are scheduled to take effect Jan. 1. Failure to reach agreement would push the U.S. into recession for the first half of 2013, the nonpartisan Congressional Budget Office said.

“It looks like there may be a series of small deals,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “It may end up being more of a fiscal slope than a cliff.”

Crude oil for February delivery slipped 5 cents to settle at $88.61 a barrel on the New York Mercantile Exchange. The volume for all West Texas Intermediate oil futures traded was down 81 percent from the 100-day average. WTI is the grade traded on the Nymex.

The exchange shut at 1:30 p.m. New York time today, an hour earlier than usual. There is no floor trading tomorrow because of the Christmas holiday and all electronic transactions will be booked for Dec. 26 for settlement purposes.

Brent oil for February settlement fell 17 cents to end the session at $108.80 a barrel on the London-based ICE Futures Europe exchange. The number of contracts changing hands was 78 percent lower than the 100-day average. The European benchmark crude was at a premium of $20.19 a barrel to WTI, down from $20.31 on Dec. 21.

Interim Bill

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 and 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.

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.

The drop in crude will accelerate if WTI crosses the 50-day moving average, which is at $87.41, said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. Technical analysts use historical patterns and tools such as moving averages to predict price movements.

Price Targets

“If we can build some momentum to the down side, our next target will be Friday’s low of $87.96 and then the 50-day moving average,” Armstrong said. “Oil remains resolutely range-bound. We’ve been in a $7-a-barrel range, between $84 and $91, for the last two months.”

Futures in New York have traded between $85.05 and $90.54 a barrel over the past two months amid budget negotiations and mixed economic signals.

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 percent this year.

Speculator Wagers

Hedge funds boosted bullish bets on WTI 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.

In London, hedge funds and other money managers raised bullish bets on Brent crude by the most in three weeks, according to data from ICE Futures Europe. Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 106,138 lots in the week to Dec. 18, the exchange said today in its weekly Commitment of Traders report.

Electronic trading volume on the Nymex was 64,894 contracts as of 2:05 p.m. Volume totaled 337,737 contracts on Dec. 21, 33 percent lower than the three-month average. Open interest was 1.48 million, the lowest level since Nov. 19.

To contact the reporter on this story: 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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