Oil Prices Lifted by Progress on Fiscal Cliff Talks

Oil prices edged higher Monday following news of progress in Washington on negotiations to avert the fiscal cliff.

House Speaker John Boehner (R., Ohio) proposed raising taxes on millionaires in exchange for spending cuts in a concession to President Barack Obama, according to news accounts. Some Washington insiders described the shift as a breakthrough, although the two sides remain far apart on many key details.

That offer was followed Monday by a 45-minute, face-to-face meeting at the White House between the two men. The talks aim to avert some $500 billion in spending cuts and tax increases that would take effect at the end of the year if a deal isn't reached.

Front-month futures of light, sweet crude for January delivery settled at $87.20 per barrel, up 47 cents, or 0.5%. Brent oil futures settled at $107.64 per barrel, down 54 cents.

"Hopefully there will be a deal reached, and that's moving the energy markets up," said Tariq Zahir, managing partner and oil trader at Tyche Capital.

The fiscal negotiations come as oil prices hover in a tight trading range of about $84-$90 a barrel. Many analysts see little on the horizon that could push oil significantly from these levels. Some see oil prices anchored somewhat by copious oil supplies in the physical market.

"I think the market is going to pretty much stay here...unless there is some geopolitical development, or the negotiations fall apart," said Andy Lebow, a broker at Jefferies Bache.

"We seem to have found an equilibrium price between $84 and $90," Mr. Lebow added.

Analysts noted that Monday's gain in oil came in spite of a surprisingly negative report on the New York economy.

The Federal Reserve Bank of New York's Empire State Manufacturing Survey index slipped to minus 8.1 in December, a deterioration from minus 5.2 in November. Readings below zero reflect shrinking activity. Economists surveyed by Dow Jones Newswires had expected the index to improve to minus 1.0.

The tepid New York reading raises concerns about a slowdown in factory activity elsewhere in the U.S., though this month's report reflected some lingering region-specific effects from a late-October superstorm that battered the Northeast coastline.

Oil market insiders disagree on the extent oil prices could be boosted by a resolution in the fiscal cliff talks.

Phil Flynn, analyst with the Price Futures Group, said a fiscal deal could push oil prices back to the mid-90s or higher if it is a strong and far-reaching agreement.

A deal would be "very bullish for oil and the other commodities," Mr. Flynn said. "If we can get a deal on the fiscal cliff, I think you'll see oil take off."

But John Kilduff, a trader at Again Capital, noted that the likely agreement would involve tax increases--which usually have a depressing effect on prices.

An agreement would be "a mixed play," said Mr. Kilduff. "It's definitely a measure of austerity."

Front-month reformulated gasoline blendstock, or RBOB, settled at $2.655 a gallon, down 0.8 cent. Heating oil futures settled at $2.956 a gallon, down 2.4 cents.

Copyright (c) 2012 Dow Jones & Company, Inc.


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Brent Crude Oil : $49.98/BBL 1.59%
Light Crude Oil : $49.18/BBL 1.56%
Natural Gas : $2.73/MMBtu 1.44%
Updated in last 24 hours