Oil fell from the highest level in two months, paring a weekly gain, on concern U.S. lawmakers will fail to avert spending cuts and tax increases that threaten the economy of the world’s biggest crude consumer.
Futures slipped as much as 0.8 percent after House Republican leaders canceled a vote on Speaker John Boehner’s budget plan and the chamber said no more votes will be held until after the Christmas holiday. Fewer than two weeks remain to avert budget measures known as the fiscal cliff that start in January. Oil rose a fifth day yesterday, the longest run of gains since September, after government data showed U.S. gross domestic product grew at a 3.1 percent annual rate in the third quarter, up from a previous estimate of 2.7 percent.
“The fiscal cliff is the key driver,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “The GDP figure helped to create a bit of confidence and perhaps caused some upward adjustments to growth forecasts. A lot of this depends, of course, on the fiscal cliff and the extent to which the government sector is going to be a drag on the economy.”
Crude for February delivery fell as much as 72 cents to $89.41 a barrel in electronic trading on the New York Mercantile Exchange and was at $89.52 at 12:44 p.m. Sydney time. The contract rose 15 cents to $90.13 yesterday, the highest close since Oct. 18. Prices are up 3.2 percent this week, the biggest increase since July.
Brent for February settlement slid 33 cents to $109.87 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $20.35 to WTI futures, from $20.07 yesterday.
WTI has dropped 9.4 percent in 2012 as the U.S. shale boom deepens the glut at Cushing, Oklahoma, America’s biggest storage hub and the delivery point for Nymex futures. That has left it at an average discount of $17.44 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 risen 2.3 percent this year.
Goldman Sachs Group Inc. cut its three-month outlook for WTI to $101 a barrel yesterday, citing a Bloomberg report that the upgrade of the largest crude unit at BP Plc’s Whiting refinery in Indiana was delayed. The bank left its forecast for Brent oil at $115, thereby increasing its prediction for the grade’s premium to WTI to $14 from $4 previously.
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