Oil rose to the highest level in almost three months in New York after U.S. lawmakers reached a deal to avert automatic tax increases and spending cuts that threatened growth in the world’s biggest economy.
Futures increased as much as 1.7 percent after legislation to avoid the so-called fiscal cliff was passed by a vote of 257-167 in the House after Republicans abandoned an effort to add spending cuts to the Senate’s plan. A government gauge of China’s manufacturing showed a third month of expansion yesterday, a sign that the recovery in the world’s second- biggest oil consumer will extend to this year.
“The compromise reached on the fiscal cliff means that the U.S. economic recovery can continue unimpeded,” said Christopher Bellew, a senior broker at Jefferies Bache Ltd. in London, who predicts oil will remain near current levels this month. “Unemployment will continue to shrink in the U.S. and the housing market to recover.”
West Texas Intermediate for February delivery rose as much as $1.60 to $93.42 a barrel in electronic trading on the New York Mercantile Exchange, the highest since Oct. 10. It was at $93.27 at 12:51 p.m. in London. WTI dropped 7.1 percent last year, the first drop since 2008. Trading was closed yesterday for the New Year holiday.
Brent for February settlement rose $1.13, or 1 percent, to $112.24 a barrel on the London-based ICE Futures Europe exchange. The North Sea grade advanced 3.5 percent in 2012, a fourth annual gain.
WTI slid 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 left it at an average $17.48 a barrel below Brent last year, compared with a premium of about 95 cents in the 10 years through 2010. The difference was $18.89 a barrel today.
The bipartisan agreement in the U.S. breaks a yearlong impasse over how to head off $600 billion in tax increases and spending cuts taking effect today. The Senate passed the bill early Jan. 1 by a 89-8 vote and President Barack Obama said he will sign the legislation.
“This law is just one step in the broader effort to strengthen our economy,” Obama said at the White House after the House vote.
“Now that the deal is through it’s no surprise that oil is trading higher,” said Michael McCarthy, a chief strategist at CMC Markets in Sydney, who predicts WTI may reach $100 a barrel this month. “We’re clearly seeing a modest expansion in manufacturing in China. That speaks directly to global oil demand.”
China’s Purchasing Managers’ Index was 50.6 in December, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. That compares with the 51 median estimate in a Bloomberg News survey of 27 analysts and 50.6 in November. A reading above 50 indicates expansion.
A report later today may show U.S. factories produced more last month. The Institute for Supply Management’s manufacturing index probably rose to 50.4 in December from 49.5 the prior month, according to a Bloomberg survey.
Oil’s rally in New York may stall as futures reach technical resistance, a level where sell orders are typically clustered. The 14-day relative strength index has risen to 67.1, the highest since mid-September, according to data compiled by Bloomberg. A reading above 70 signals prices may have climbed too quickly.
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