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Fiscal-Cliff Worries Snap Five-Day Streak of Crude-Oil Futures Price Gains

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NEW YORK

U.S. crude-oil futures retreated Friday in a broad selloff across asset classes on worries that talks aimed at avoiding the so-called fiscal cliff had reached an impasse.

A five-day rally, which pushed front-month U.S. benchmark futures to a two-month high above $90 a barrel, never stood a chance of being extended in the face of widespread worries over pending fiscal chaos if a deal isn't struck by Dec. 31.

In a surprise move Thursday, the Speaker of the House, Rep. John Boehner (R., Ohio) unexpectedly disbanded the House until after Christmas, after failing to find support among his fellow Republicans for a plan that would increase taxes on people making more than $1 million a year. That leaves in limbo efforts to reach a deal to avoid the $500 billion in spending cuts and tax increases that many fear could tip the economy into a recession.

The jolt from the impasse comes as U.S. economic indicators are looking more supportive and shrinking inventories for heating oil and diesel and gasoline in the Northeast have been propping up prices.

Light, sweet crude-oil futures for February delivery on the New York Mercantile Exchange settled 1.6%, or $1.47, lower at $88.66 a barrel. The drop was the largest single-day decline in two weeks. Heading into Friday, crude was up more than $4 a barrel since Dec. 13, but most of the gain came in the January contract which rallied strongly in the days before its expiration on Wednesday.

ICE February North Sea Brent crude oil settled down $1.23, at $108.97 a barrel, in the biggest one-day drop since Dec. 13.

The U.S. Commerce Department said Friday that durable-goods orders in November rose by 0.7%, compared with economists' forecasts for a 0.1% decline. That follows data earlier in the week that showed stronger-than-expected growth in U.S. third-quarter gross domestic product.

But market participants said the meaning of the strong data will be lost in the turmoil if both sides in Washington can't strike a deal.

"You can throw all those numbers out the window if this stalemate continues on the fiscal cliff," said Phil Flynn, analyst and broker at Price Futures.

Mr. Flynn said oil prices typically rally into the Christmas holiday, as a hedge against potential market surprises in what is for many an extended break. But the fiscal-cliff worries cast a shadow on that expectation.

Traders said the supply/demand fundamentals are improving in the U.S., with record low mid-December stocks of gasoline and diesel/heating oil in the Northeast U.S. underpinning crude-oil prices and potentially setting a floor at $90 a barrel, if Washington can puzzle out a solution to the fiscal impasse. Analysts have expressed differing views over whether the heating-oil or gasoline market has the strongest potential in the near-term.

Andy Lebow, senior vice president for energy futures at Jefferies Bache, noted that with winter only starting, heating-oil prices may be poised for further gains, but much will depend on the weather, which has been unseasonably warm in large residential heating-oil markets so far this month.

Reformulated gasoline blendstock and heating-oil futures settled lower, capping three days of gains that put prices at their highest levels in about a month.

January heating-oil futures prices settled 3.51 cents lower at $3.0224 a gallon in the biggest loss in two weeks. Reformulated gasoline blendstock futures for January settled 1.96 cents lower, at $2.7347 a gallon, posting the biggest decline in a week.

Write to David Bird at david.bird@dowjones.com

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


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