Friday, 30 November 2012 09:42
SINGAPORE: Brent crude slipped towards $110 per barrel on Friday as critical US budget talks to avert a looming fiscal disaster appeared to have stalled, denting the outlook for oil demand from the world's biggest consumer.
US fiscal worries have cut into oil's gains this month that were spurred by tensions in the Middle East. Brent had risen 2.4 percent in the first half of November but is now on track to close the month up 1.6 percent, snapping two straight monthly losses.
"We are trading day to day based on the running drama over the fiscal cliff, and the market doesn't look very optimistic at the moment," said Carl Larry, a derivatives broker with Atlas Commodities in Houston, referring to US talks to avert $600 billion worth of tax hikes and spending cuts, or the so-called "fiscal cliff" due to start in the new year that threatens to push the economy back to recession.
"This deal needs to get done, but will it get done before Christmas, today that seems to be in doubt, but the US can't afford to let this roll past the deadline."
Top US Republican lawmaker John Boehner, speaker of the House of Representatives, said on Thursday fiscal cliff talks had made no substantive progress. This comment came just a day after President Barack Obama said he hoped to reach a deal before Christmas.
Brent crude dropped 35 cents to $110.41 a barrel by 0225 GMT. Earlier in the session, prices hit $110.57, topping its 50-day moving average price of $110.56. A breach of moving average levels can encourage buying, boosting prices further.
US crude was down 38 cents to $87.69 a barrel.
The United States is a critical component to lifting the outlook for the global economy in 2013, as Europe continues to struggle with the debt crisis and China, the world's second largest consumer of oil, heads for a soft landing in 2012.
US economic growth in July-Sept was revised up to 2.7 percent on Thursday from an initial reading of 2.0 percent as restocking by businesses provided a big boost, but consumer and business spending - important gauges of the economy - were revised lower.
"If you look at it on the surface, it would seem that the economy is doing better, but underlying there are still issues, and I don't see the US economy being able to lift outlook on demand next year," said Jim Ritterbusch, president of Chicago-based Ritterbusch & Associates.
"We are looking at more downward revisions for global oil demand in 2013, and the market is generally oversupplied."
A Reuters survey suggests the 12-member Organization of the Petroleum Exporting Countries is still producing over a million barrels per day (bpd) more than its target of 30 million bpd.
OPEC crude output in November averaged 31.06 million bpd, down from 31.15 million bpd in October, the survey found. OPEC is likely to keep its current output target of 30 million bpd when its members meet next month, OPEC delegates told Reuters.
MIDDLE EAST CRISIS
However, support for oil prices continues to come from the political crisis in Egypt and Western sanctions on Iran.
An Islamist-led assembly was expected to finalise a new constitution on Friday aimed at transforming Egypt and paving the way for an end to a crisis which erupted when President Mohamed Mursi gave himself sweeping new powers last week.
On Thursday, an alliance of Egyptian opposition groups pledged to keep up protests against Mursi and said broader civil disobedience was possible to fight what it described as an attempt to "kidnap Egypt from its people."
The US Senate is set to consider a broader set of economic sanctions on Iran's energy, port, shipping and shipbuilding sectors, as lawmakers look for new ways to pressure Tehran to stop efforts to enrich uranium to levels that could be used in weapons.
The sanctions come as the United Nations' nuclear chief said his agency has made no progress in its year-long push to investigate whether Iran has worked on developing an atomic bomb.
Israel and its allies insist Iran is trying to build a nuclear bomb while the Tehran says its program is for civilian purposes.
Copyright Reuters, 2012