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Oil Steady on Debt Ceiling Concern, Supply Expectations

Oil was little changed amid concern that Congress will fail to raise the U.S. debt ceiling, hurting economic confidence, and on speculation that supplies in the world’s biggest crude-consuming country will rebound.

Futures traded in a 93-cents-a-barrel range as Republicans vowed to require spending cuts in exchange for increasing the U.S. borrowing limit. Lawmakers struck a compromise last week that averted a package of spending cuts and tax gains known as the fiscal cliff. Crude supplies in the week ended Dec. 28 were up 9.2 percent from a year earlier, Energy Department data show.

“Investors are concerned about the debt ceiling and other political issues may hurt the economy,” said Kyle Cooper, director of research for IAF Advisors in Houston. “It’s hard to see how prices can climb much above $93 with these concerns in the background.”

Crude oil for February delivery rose 10 cents to $93.19 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 18. Prices are down 8.2 percent from this point last year. Trading volume was 23 percent below the 100-day average.

Brent oil for February settlement advanced 9 cents to end the session at $111.40 a barrel on the London-based ICE Futures Europe exchange. Brent volume was 22 percent above the 100-day average.

The European benchmark contract was at a premium of $18.21 to West Texas Intermediate oil traded in New York, down 1 cent from Jan. 4 and the lowest since Sept. 24. The Brent bonus has dropped more than $7 a barrel since Nov. 15 on the approach of service expansion from the Seaway pipeline connecting Cushing, Oklahoma, with the Gulf Coast and rising North Sea production.

Capacity Gain

Enterprise Products Partners LP (EPD) and Enbridge Inc. (ENB) plan to resume service on the 500-mile (805-kilometer) Seaway link at full rates this week after more than doubling the line’s capacity to 400,000 barrels a day from 150,000.

“The reopening of an expanded Seaway pipeline is supportive of WTI and will put downward pressure on Brent,” Cooper said. “It will help drain record stockpiles at Cushing and will get barrels where they are needed.”

Republicans plan to use the need to raise the nation’s $16.4 trillion debt ceiling to force President Barack Obama to accept cuts in entitlement programs such as Medicare.

“We’re taking a bit of a pause after avoiding the fiscal cliff last week,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “Inventories are high in the U.S. but that’s a local phenomenon. The global demand outlook is looking good.”

U.S. Inventories

U.S. crude supplies tumbled 11.1 million barrels to 359.9 million barrels in the week ended Dec. 28, leaving stockpiles at the lowest level since September, last week’s Energy Department report showed. Stockpiles have decreased during December for the past six years because of inventory shifts for tax and accounting purposes. Companies in Gulf Coast states minimize supplies at the end of the year to reduce local taxes.

“The big supply drop is being chalked up to end-of-the- year tax considerations,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “It doesn’t change the fact that we have ample supplies and anemic demand.”

Hedge funds raised bullish bets on WTI to the highest level in 11 weeks before lawmakers passed a bill to undo the automatic tax increases that threatened the U.S. economy. Obama signed the bill, which protected 99 percent of households from higher income taxes, on Jan. 2, a day after it was passed by Congress.

Money managers boosted net-long positions by 11 percent in the seven days ended Jan. 1 to the most since Oct. 16, the Commodity Futures Trading Commission’s Commitments of Traders report showed on Jan. 4.

Brent Wagers

In London, hedge funds and other money managers raised bullish bets on Brent crude to their highest level in nine months, according to data from ICE Futures Europe.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 139,111 lots in the week ended Dec. 31, the London-based exchange said today in its weekly Commitment of Traders report.

Electronic trading volume on the Nymex was 332,316 contracts as of 3:04 p.m. Volume totaled 511,030 contracts on Jan. 4, the highest level since Dec. 14. Open interest was 1.48 million.

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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