NEW YORK—Oil slipped on yesterday, after prices hit 11-week highs, on worries about looming US budget battles and signs of growing concern by the US Federal Reserve about buying bonds to spur economic growth.
Focus shifted from the fiscal cliff deal reached earlier this week to the upcoming wrangling US President Barack Obama and Republicans in Congress will face over the budget, which could put further stress on the world’s biggest economy.
The oil markets have been closely watching the US budget crisis, as well as ongoing problems in the euro zone, for signs it could further dampen struggling fuel demand.
Brent crude jumped to over US$112 a barrel for the first time since mid-October on Wednesday after the fiscal cliff deal was reached, but players said the market was awaiting strong signs that the economy was improving to extend the rally longer term.
“The uncertainty because of the budget cuts and the ceiling debate seem to have tempered the markets enthusiasm that things were getting better and that’s why things have stalled,” said Gene McGillian, analyst, Tradition Energy in Stamford, Connecticut.
“I think we probably have more to go on the rally but a significant rally from here has to come from signs the economy is really improving.”
Prices fell further in a wider sell off of risk assets, including equities, in US afternoon trade after minutes from the Federal Open Market Committee showed rising concern about the risks of the Fed’s policy of buying bonds to stimulate growth.
Brent crude settled 33 cents lower at US$112.14 a barrel after rising more than one per cent on Wednesday to settle at their highest level since October. US crude fell 20 cents to settle at US$92.92 a barrel, erasing smaller gains from earlier in the day after the Fed minutes were released.
Brent’s premium to US crude narrowed, in part due to news a major expansion of the Seaway pipeline—aimed at easing the bottleneck at the Cushing, Oklahoma oil hub which has depressed US prices—should be at full rates by the end of next week.
The spread between Brent and West Texas Intermediate narrowed to just over US$19 a barrel on Thursday, down from 2012 highs of about US$26.
Brent trading volumes were healthy, about 17 per cent above the 30-day moving average, while US crude trade was about average for that period.
Eyes on economic, inventory data
US economic data released Wednesday was mixed, with US private-sector employment data coming in stronger than expected.
A separate report showed the number of Americans filing new claims for unemployment benefits rose last week, and traders will now be closely watching out for payrolls data coming out on today.
Data also showed the service sector of No 2 oil consumer China expanded in December, fueling hopes that the world’s second-largest economy and top energy consumer is recovering. (Reuters)