London: Brent crude oil futures fell to their lowest in 12 days on Wednesday on fears of a looming budget crisis in the US, the world’s top oil consumer.
Brent crude fell $0.85 to $109.02 per barrel by 1604 GMT, recovering from $108.44 earlier in the session. US crude shed $0.90 to trade at $86.28 per barrel.
A failure by the US lawmakers to make progress in their budget talks - raising the prospect of automatic spending cuts and tax hikes - has pushed sensitive assets like oil and equities lower.
The US Congress pushed toward a compromise on Tuesday on a deal to avert the “fiscal cliff” of tax increases and spending cuts due to take effect next year, but an agreement still appeared elusive.
“With global macroeconomic headwinds dominating the markets, such as the ‘fiscal cliff’, headlines out of Europe ... the overall trend for energy prices remain in a downtrend,” said Chris Jarvis, president of Massachusetts-based Caprock Risk Management.
Middle East Support
The mounting political crisis in Egypt and escalating violence in Syria has led to worries about potential disruption to supplies in the Middle East, helping prevent a larger decline in oil prices.
Hundreds of demonstrators were in Cairo’s Tahrir Square for a sixth day on Wednesday, demanding President Mohamed Mursi rescind a decree they say gives him excessive powers, while two of Egypt’s top courts stopped work in protest.
Highlighting the potential for further supply worries, the Muslim Brotherhood and hardline Salafi parties will hold protests across Egypt on Saturday in support of President Mursi.
“The Middle East looks set to be a major source of uncertainty in the New Year. That provides a key support for oil prices and could well sabotage even the most persuasive set of bearish physical supply/demand figures,” said David Hufton, managing director at PVM in a note.
US crude oil inventories dropped slightly last week versus expectations for a build and gasoline stocks rose sharply as refineries increased processing rates, data from the US Energy Information Administration showed.
US crude oil inventories fell 347,000 barrels in the week to 23 November, to 374.12 million barrels, after analysts polled by Reuters had forecast a build of about 300,000 barrels.
US gasoline stockpiles rose a sharp 3.87 million barrels to 204.26 million barrels, compared with expectations for a smaller 900,0000 barrel build.
“Today’s EIA data was bearish, with a much greater-than-expected build in gasoline stocks as refineries came back online following Hurricane Sandy. Crude stocks saw a modest draw against expectations of a modest build,” said Jarvis.
“However, given the robust level of crude stocks that are well over the five-year average, it was not enough to offset the bearishness in the gasoline data.” Reuters
