Brent crude traded near the highest level in one month as U.S. lawmakers prepared to resume budget talks and the United Arab Emirates said it arrested members of a terror cell that was planning attacks on oil-exporting nations.
Futures were little changed in London after rising the most in five weeks yesterday. President Barack Obama and legislators returned to Washington for talks aimed at averting more than $600 billion in tax gains and spending cuts that start Jan. 1. The U.A.E. coordinated with Saudi Arabian officials to arrest members of the terror group who had equipment needed for their attacks, according to the official WAM news agency.
“The arrests in the U.A.E. appear to have had a big impact with lower liquidity in the oil market,” said Michael Poulsen, an analyst at Global Risk Management in Middelfart, Denmark, who predicts Brent will average $112 a barrel in the first quarter. “Fundamentals look pretty balanced.”
Brent for February settlement fell 39 cents to $110.68 a barrel on the London-based ICE Futures Europe exchange at 1:03 p.m. local time. The volume was 46 percent less than the 100-day average. Prices yesterday gained $2.27, or 2.1 percent, to settle at $111.07, the highest close since Nov. 30.
West Texas Intermediate for February delivery was unchanged at $90.98 a barrel in electronic trading on the New York Mercantile Exchange. The volume traded for all contracts was 39 percent below the 100-day average. Futures advanced $2.37 to $90.98 yesterday. The European benchmark crude was at a premium of $19.67 to WTI.
The U.S. benchmark has dropped 7.9 percent in 2012 as the U.S. shale boom deepened the glut at Cushing, Oklahoma, America’s largest oil-storage hub and the delivery point for Nymex futures. That has left WTI at an average discount of $17.46 a barrel to Brent this year, compared with a premium of about 7 cents in the five years through 2010. Brent, the benchmark grade for more than half the world’s crude, has climbed 3.4 percent this year.
“I think there can be some resolution and we can avoid the worst-case scenario” in the budget talks, said Ken Hasegawa, an energy trading manager at Newedge Group in Tokyo. “We don’t see an issue for the terrorist news, but it was said to move prices on possible Middle East tension. It’s easier for players to move prices up and down in a thin market.”
A failure to reach an agreement on the budget plan might push the U.S., the world’s biggest crude consumer, into recession for the first half of 2013, the nonpartisan Congressional Budget Office has said.
The U.S. government will hit its statutory debt ceiling on Dec. 31, Treasury Secretary Timothy F. Geithner said in a letter to congressional leaders. To avert a default, the Treasury will create about $200 billion in headroom under the limit, which would normally last about two months. The letter adds urgency to the talks between Republicans and Obama, who has asked that raising the debt ceiling be part of a deficit-reduction plan.
Oil may decline in New York as technical indicators show prices have probably risen too quickly for further gains to be sustained. Crude’s 30-day stochastic oscillators climbed above 70 yesterday for the first time since September, signaling futures are overbought, according to data compiled by Bloomberg. The front-month contract also settled higher than the upper Bollinger Band, around $90.70 a barrel today, an indicator that has halted advances twice this month.
Heating oil futures were little changed at $3.0522 a gallon in New York after increasing 1.6 percent yesterday, the biggest gain in more than five weeks. A winter storm may have dropped as much as 3 inches (7.6 centimeters) of snow and ice on New York City yesterday. A weather advisory was issued as the system neared the area, said Tim Morrin, a National Weather Service meteorologist in Upton, New York. The storm has dumped heavy snow across the Great Plains and Midwest and brought high winds and tornadoes across the South.
Crude held on to yesterday’s gains because “it’s got a lot to do with a little bit of weather,” said Jonathan Barratt, chief executive officer of Barratt’s Bulletin, a commodity newsletter in Sydney.