The uncertainty over the US budget, which is postponed to after the Christmas holiday, keeps pushing oil prices downward. Rising oil supplies will continue to put more downward pressure, a sector professional says. Iraq, meanwhile is forcing its output to the limits
Oil pumps work in the desert oil fields of Sakhir, Bahrain. The oil markets await for U.S. political leaders to inch toward a budget deal. AP photo
Brent crude fell for a third day, staying below $109 a barrel, as uncertainty over the ability of the United States to resolve a budget crisis before a year-end deadline stoked investor concerns about demand growth in the world’s top oil user.
The doubts over the so-called U.S. “fiscal cliff” that will trigger harsh spending cuts and tax hikes and risk tipping the country back into recession further dented investor appetite for assets such as oil. Markets have been under pressure after U.S. House of Representatives Speaker John Boehner failed to get lawmakers support a deal with the White House.
“It’s all about the U.S. fiscal cliff issue,” said Victor Shum, managing director at IHS Purvin & Gertz. “The chances are that we will get a deal between the White House and the Republicans, but the fact that Boehner failed to get members to support his plan is worrying.”
With just nine days left, some U.S. lawmakers are voicing concerns the country would go over “the fiscal cliff.” President Barack Obama and Boehner, the key negotiators, are out of town for the Christmas holidays. Congress is in recess, and will have only a few days next week to act before the Jan. 1 deadline.
Given this scenario, investors are now looking at a stop-gap that puts everything off for a while as the most promising alternative. Such a fix may help delay the spending cuts and tax hikes further into 2013 as well as work to address in a long-term way a government budget that has generated deficits exceeding $1 trillion in each of the last four years.
The uncertainty and rising oil supplies will continue to put more downward pressure on prices in coming weeks, Shum said.
Iraq’s oil production has exceeded 3.2 million barrels a day (bpd) so far this month and may hit capacity of 4 million bpd in 2014, its Oil Minister Abdul Kareem Luaibi said.
Shum expects U.S. crude to trade between $85 and $89 a barrel, with Brent around $20 more expensive than the U.S. benchmark.
U.S. oil is expected to drop more to $87.30, according to Reuters technical analyst Wang Tao, and Brent may keep declining to $107.58, the Dec. 17 low, as a rebound from the Dec. 6 low of $106.63 seems to have completed.
Losses were capped due to geopolitical tensions in the Middle East.
Dozens of people were killed in an air strike while queuing for bread in Syria’s central Hama province on Dec. 23, activists said, with some residents giving an initial count of 90 dead.
Such a toll, if confirmed, would make it one of the deadliest air strikes in Syria’s civil war.
Oil markets have also been on edge through most of the year as tensions between Iran and the West escalated over Tehran’s disputed nuclear program.
Western sanctions on Iran’s shipping and energy sectors caused serious problems for its oil industry earlier this year but Iran has mostly overcome those challenges, Oil Minister Rostam Qasemi was quoted as saying on Dec. 23.