Crude Oil Drops From Highest in Three Months

Crude slid for the first time in three days in New York on speculation that this week’s gains were unjustified as the U.S. budget deal is insufficient to ensure growth in the world’s biggest oil-consuming country.

Futures lost as much as 0.7 percent after rallying 2.6 percent in the past two sessions as U.S. lawmakers passed a bill to undo automatic tax increases and spending cuts that threatened the nation’s economic recovery. The accord won’t reduce deficits enough to avoid a sovereign-rating downgrade, Moody’s Investors Service said yesterday. Technical indicators showed crude may have risen too quickly, according to data compiled by Bloomberg.

“We’re seeing short-term jitters on the back of Moody’s comments of a potential downgrade in the pipeline if things are not improved in the coming months,” said Michael Poulsen, an analyst at Global Risk Management Ltd. in Middelfart, Denmark.

West Texas Intermediate for February delivery dropped as much as 63 cents to $92.49 a barrel in electronic trading on the New York Mercantile Exchange and was at $92.76 as of 1:05 p.m. London time. The contract yesterday climbed 1.4 percent to $93.12 a barrel, the highest settlement for a contract nearest to expiration since Sept. 18.

Brent for February settlement on the London-based ICE Futures Europe exchange fell as much as 84 cents to $111.63. Prices advanced 3.5 percent in 2012, a fourth annual gain. The North Sea crude was $19.37 a barrel more than WTI.

Trading volume in WTI was 26 percent below the 100-day average for the time of day, while Brent was 6 percent above.

Debt Ratio

The ratio of U.S. government debt to gross domestic product will likely peak at about 80 percent in 2014 and may stay at about 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.

“Further measures that bring about a downward debt trajectory over the medium term are likely to be needed,” Moody’s said.

WTI yesterday settled higher than the 30-day upper Bollinger Band for the fourth time in a week, signaling the market is overbought, according to data compiled by Bloomberg. Prices decreased in mid-September after closing above the same indicator, about $92.49 a barrel today.

The crude’s 14-day relative strength index for front-month prices rose to 68.1 yesterday, the highest level since Sept. 14. A reading above 70 is a signal to investors that price increases may have been excessive. It is at 64.9 today.

“We’re getting a mild sell signal and the coincidence of those levels mean that some traders will be bailing out,” said Michael McCarthy, a chief strategist at CMC Markets in Sydney. “What we’re seeing is longs closing out, taking some profit.”

Oil Inventories

U.S. crude stockpiles probably fell by 500,000 barrels to 370.6 million in the seven days ended Dec. 28, according to the median estimate of nine analysts surveyed by Bloomberg before an Energy Department report tomorrow. A drop of that size would leave supplies at the lowest level since the week to Oct. 12.

The Energy Department is scheduled to release its weekly report in Washington two days later than usual because of the New Year holiday. The industry-funded American Petroleum Institute will publish its inventory data later today.

Stockpiles at Cushing, Oklahoma, America’s largest storage hub and the delivery point for the New York contract, increased 2.21 million barrels to a record 49.2 million in the seven days ended Dec. 21, the Energy Department reported on Dec. 28.

Seaway Expansion

WTI slid 7.1 percent in 2012 as the U.S. shale boom deepened a supply glut at Cushing. That left it at an average $17.47 barrel below Brent last year, compared with a premium of about 95 cents in the 10 years through 2010.

“Final work is being performed” on the Seaway pipeline that was reversed in May to carry crude from Cushing to the Gulf Coast, owners Enterprise Products Partners LP (EPD) and Enbridge Inc. (ENB) said yesterday. Capacity is being expanded to 400,000 barrels a day from 150,000 and operations will start at full rates by the end of next week, according to a joint statement.

The U.S. House vote to pass legislation avoiding the so- called fiscal cliff capped a final push as Republicans balked at a bipartisan Senate bill. House Speaker John Boehner ordered a vote even as 151 of 236 Republicans, including Majority Leader Eric Cantor, ultimately voted no. President Barack Obama said he’d sign the bill into law.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

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

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