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Crude Futures Set for Annual Drop in New York

Oil headed for its first annual decline since 2008 in New York as U.S. lawmakers sought an agreement on averting automatic tax increases and spending cuts that threaten the economy of the world’s largest crude consumer.

West Texas Intermediate fell as much as 0.9 percent, dropping for a third day. U.S. Senate Majority Leader Harry Reid said there are “still significant differences” between Democrats and Republicans with one day remaining to avoid the budget measures known as the fiscal cliff. The volume for WTI contracts was down 56 percent on the 100-day average.

“Prices may have been influenced by the lack of agreement on the U.S. budget crisis, with weakness in thin volumes today,” Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London, said today by e-mail. “They are still in the broad range that has prevailed for the last three months.”

Crude for February delivery was at $90.09 a barrel, down 71 cents, in electronic trading on the New York Mercantile Exchange at 12:51 p.m. London time. Prices gained 2.4 percent last week, trimming this year’s decline to 8.8 percent.

Brent for February settlement on the London-based ICE Futures Europe exchange declined $1.07 to $109.55 a barrel. The contract climbed 1.5 percent last week, extending its advance this year to 2.1 percent, a fourth annual gain. The European benchmark’s premium to WTI narrowed for a fifth day to $19.46.

WTI has declined in 2012 as the U.S. shale boom deepened a glut at Cushing, Oklahoma, America’s biggest storage hub and the delivery point for the New York contract. That has left it at an average $17.44 a barrel below Brent this year, compared with a premium of about 95 cents in the 10 years through 2010.

Rising Output

U.S. crude production rose to 6.984 million barrels a day, the highest since 1993, in the week ended Dec. 21, the Energy Department reported Dec. 28.

The House and Senate met yesterday after President Barack Obama on Dec. 28 asked Reid and Minority Leader Mitch McConnell to try to find a solution to the fiscal cliff. Both houses adjourned by mid-evening and will resume today. The Senate will resume its session at 11 a.m. Washington time and “perhaps” have further announcements then, Reid said yesterday.

China’s manufacturing unexpectedly expanded at the fastest pace in 19 months in December, boosting optimism that a recovery in the world’s second-largest oil consumer is gaining traction. The PMI reading of 51.5 was higher than the 50.9 preliminary reading on Dec. 14 and a final 50.5 in November. A reading above 50 indicates an expansion.

Chinese Consumption

“The latest China PMI shows continuing expansion in manufacturing activity which is supportive of oil,” said Victor Shum, a managing director at IHS Consulting in Singapore.

China will consume 9.9 million barrels a day of oil, 115,000 more than previously projected, in the last three months of this year, the International Energy Agency said in its monthly report on Dec. 12. The country’s apparent oil demand climbed 9.9 percent in November from a year earlier to 10.5 million barrels a day, according to data compiled by Bloomberg.

Oil in New York may extend its decline in 2013 as futures are poised to end this year with a bearish technical formation, data compiled by Bloomberg show. The 2012 candlestick overshadows last year’s, based on the opening and closing prices, creating a bearish engulfing pattern on the annual chart. Investors sold contracts to start the year after similar candles formed in 2008 and 1997. A settlement today at or above the 2011 open of $91.31 a barrel will cancel this chart pattern.

Net-long positions in WTI held by money managers, including hedge funds, commodity pools and commodity-trading advisers, increased by 13,783 futures and options combined, or 11 percent, to 134,834 in the week ended Dec. 24, according to the U.S. Commodity Futures Trading Commission’s weekly report on Dec. 28.

In London, funds and other money managers raised bullish bets on Brent by the most in a month, according to data from ICE Futures Europe.

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

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

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