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posted: 12/6/2012 6:54 AM

Inventories, budget talks hurt oil prices

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Bloomberg News

Oil traded near its lowest price in a week in New York as inventories of fuels such as heating oil rose by the most since July and U.S. lawmakers struggled to reach agreement on a budget plan.

West Texas Intermediate was little changed after declining a second day yesterday as U.S. distillate stockpiles climbed 3.03 million barrels, according to the Energy Department. They were forecast to gain 850,000 barrels. Crude also dropped amid disagreement between President Barack Obama and Republican leaders in talks to avert more than $600 billion in automatic tax increases and spending cuts known as the fiscal cliff.

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"Supplies are plentiful going into early 2013, which would cushion any surprise disruptions," said Andrey Kryuchenkov, an analyst at VTB Capital in London. "Uncertainty over the U.S. debt reduction negotiations is seeing very cautious trading in crude at the moment."

WTI crude for January delivery was at $87.76 a barrel, down 12 cents, in electronic trading on the New York Mercantile Exchange at 12:21 p.m. London time. Prices fell 62 cents yesterday to close at $87.88 a barrel, the lowest since Nov. 28. Futures have dropped 11 percent this year.

Brent for January settlement on the London-based ICE Futures Europe exchange was down 15 cents at $108.66 a barrel after sliding $1.03 yesterday. The European benchmark crude was at a premium of $20.88 to WTI. It closed at $20.93 yesterday, the narrowest gap since Nov. 2.

Brent Forecasts

Morgan Stanley, Goldman Sachs Group Inc. and Oversea- Chinese Banking Corp. predict Brent will average $110 a barrel next year.

Morgan Stanley lowered its outlook from $115, citing slower economic growth, Hussein Allidina, the bank's New York-based head of commodities research, said in a report today. Concern that a euro-area recession will curb demand will be countered by geopolitical tension that may disrupt Middle East supplies, according to OCBC's Barnabas Gan.

Brent will slide to $105 in 2014 as halted supplies in the Middle East and Africa resume, Jeff Currie, Goldman's head of commodities research in New York, said in an e-mailed report yesterday. Some of the suspended output in Iran, Sudan, Syria and Yemen will be restored within the next three years, he said.

OPEC Production

The Organization of Petroleum Exporting Countries may need to lower production by 1 million barrels a day, or about 3 percent, in the first half of next year, according to Societe Generale SA. Brent may drop 20 percent by June if the group doesn't cut output, the Centre for Global Energy Studies said. The exporter group meets next week in Vienna.

Gasoline stockpiles rose by 7.86 million barrels, the most since Sept. 21, 2001, the Energy Department said. Demand for slid for a third week even as refineries ran at the highest rate since August.

Consumption declined 73,000 barrels a day and refineries ran at 90.6 percent of capacity, the government report showed. Gasoline inventories in the week ended Nov. 30 were forecast to increase by 1.55 million barrels, according to the median of 12 analyst estimates in a Bloomberg survey.

Crude stockpiles slid 2.36 million barrels compared with a forecast decline of 500,000, the report showed. Inventories have dropped in December in the past six years, according to department data. Companies in Texas can be taxed on the value of stored crude as part of local property taxes, R.J. DeSilva, an Austin-based spokesman for the Texas Comptroller of Public Accounts, said in an e-mail.

'Purge of Crude'

"This is the time of year we start to get the purge of crude supplies along the Gulf of Mexico," said Stephen Schork, the president of Schork Group Inc. in Villanova, Pennsylvania.

The Obama administration is "absolutely" willing to go over the fiscal cliff if Republicans don't agree to raise tax rates on highest-income earners, U.S. Treasury Secretary Timothy F. Geithner said yesterday in an interview on CNBC.

Obama and House Speaker John Boehner spoke by telephone yesterday, Michael Steel, a spokesman for Boehner, said without giving details. A White House aide also confirmed the call, speaking on condition of anonymity.

The Congressional Budget Office has said the U.S. economy will contract by as much as 0.5 percent next year if Congress fails to stop the measures from taking effect. The U.S. accounted for 21 percent of the world's oil consumption last year, according to BP Plc's Statistical Review of World Energy.

--With assistance from Ramsey Al-Rikabi and Yee Kai Pin in Singapore. Editors: Raj Rajendran, Rachel Graham

To contact the reporter on this story: Jacob Adelman in Tokyo at jadelman1bloomberg.net Grant Smith in London at gsmith52bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sevbloomberg.net

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