Oil Drops From 3-Month High as U.S. Jobless Claims Rise

Crude slipped from a three-month high as more Americans than forecast filed applications for unemployment benefits last week and on concern that new budget legislation won’t reduce the deficit fast enough.

Prices dropped as the Labor Department said jobless claims rose 10,000 to 372,000. President Barack Obama signed the budget measure into law yesterday to undo automatic tax increases and spending cuts. Oil supplies fell to a two-month low, a Bloomberg survey of analysts showed before a government report tomorrow.

“We saw crude coming off a little bit on the jobless claims,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “The fiscal deal didn’t solve all the problems. We still have big issues ahead.”

West Texas Intermediate for February delivery fell 20 cents to settle at $92.92 a barrel on the New York Mercantile Exchange. Futures climbed to $93.12 a barrel yesterday, the highest settlement for a contract nearest to expiration since Sept. 18.

Prices were little changed from the settlement after the American Petroleum Institute reported inventories dropped 12 million barrels last week to 358.5 million. Oil futures fell 29 cents, or 0.3 percent, to $92.82 a barrel in electronic trading at 4:49 p.m., up from $92.66 before the report was released.

Brent for February settlement slid 33 cents, or 0.3 percent, to $112.14 a barrel on the London-based ICE Futures Europe exchange. The North Sea crude was $19.22 a barrel more than WTI, down from yesterday’s $19.35. Trading volume in WTI was 12 percent below the 100-day average at 4:33 p.m. in New York, while Brent was 3.5 percent higher.

Seaway Pipeline

Brent’s premium to WTI narrowed as Enterprise Products Partners LP (EPD) and Enbridge Inc. (ENB) planned to resume service on the 500-mile (805-kilometer) Seaway pipeline linking the U.S. pipeline hub at Cushing, Oklahoma, with Freeport, Texas. Seaway will be able to move 400,000 barrels a day when it returns next week after work that more than doubled its capacity.

Supplies at Cushing, the delivery point for WTI futures, rose 4.7 percent in the week ended Dec. 21 to a record 49.2 million barrels, according to the Energy Department.

Last week’s jobless claims exceeded the 360,000 forecast by economists surveyed by Bloomberg. The prior week’s applications were revised up to 362,000 from an initially reported 350,000.

Employment Data

The report comes one day before the Labor Department’s monthly employment figures. Payrolls rose by 153,000 workers in December after a 146,000 gain in November, according to the median forecast of economists surveyed by Bloomberg. The unemployment rate probably held at 7.7 percent, the lowest level since December 2008.

“The jobless claims number is poor,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The euphoria from the budget agreement seems to be wearing off.”

President Barack Obama signed the budget bill into law yesterday to undo $600 billion in automatic tax increases and spending cuts, known collectively as the fiscal cliff, that took effect on Jan. 1. The budget won’t cut spending enough to avoid a sovereign-debt rating downgrade, Moody’s Investors Service said yesterday.

Republicans, who control the House of Representatives, immediately turned to their next battle -- a bid to use the need to raise the nation’s $16.4 trillion debt ceiling to force Obama to accept cuts in entitlement programs such as Medicare.

“The market is showing a little hesitation to move higher because they left the job half done,” McGillian said.

Debt Ratio

The ratio of U.S. government debt to gross domestic product will probably peak at about 80 percent in 2014 and may stay at that level for the rest of the decade, New York-based Moody’s said yesterday in a statement. The ratings company assigns the U.S. its top Aaa ranking and has a negative outlook on the grade.

“Spending cuts were still on the table and we still have the debt ceiling,” said Jacob Correll, a Louisville, Kentucky- based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “The only deal they had was a smaller one on taxes and it set the stage for the next fight.”

Oil also moved lower as a record of the Federal Open Market Committee’s Dec. 11-12 meeting showed policy makers said they will probably end their $85 billion monthly bond purchases sometime in 2013, with members are divided between a mid- or end-of-year finish.

Oil Stockpiles

Oil stockpiles fell by 1 million barrels to 370.1 million in the seven days ended Dec. 28, according to the median of 10 analyst estimates. That would be a third weekly decline and the sixth drop in seven weeks.

The Energy Department is scheduled to release its weekly report two days later than usual this week because of the New Year’s holiday.

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.

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net

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

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