Brent rises above $108 on hopes for US fiscal cliff fix

  • Share via facebook
  • Tweet this
  • Bookmark and Share

Brent crude rose above US$108 a barrel on Tuesday as the outlook for oil demand improved on signs of progress in US talks to resolve a budget crisis that threatens to dip the world's top oil consumer into recession again.

Optimism that the US "fiscal cliff" tussle could be settled before tax hikes and spending cuts kick in early next year boosted riskier assets after President Barack Obama made an offer to Republicans that included a major change in position on tax hikes for the wealthy.

"Oil is tracking the positive reaction in equities from New York to Asia over hopes of a resolution of the US fiscal crisis," said Tetsu Emori, a Tokyo-based commodities fund manager at Astmax Investment.

US oil is drawing support from news of an expansion in the pipeline capacity in the United States that may help narrow the spread between the two contracts, Emori said.

Brent crude rose 76 cents to US$108.40 a barrel by 0531 GMT. US oil gained 64 cents to US$87.84, rising for a third straight day on hopes the Seaway pipeline expansion may help soak up the crude glut in the delivery hub of the futures contract.

A resolution to the so-called US fiscal cliff may help support oil prices, which have been capped, with Brent trading between a high of US$112 and a low of US$104 since November, in part because of an uncertain demand outlook.

"The market will view any advance in talks as positive for confidence which has been battered by the daily flow of political fighting," Ben Taylor, sales trader at CMC Markets said in a report. "Regardless of what is decided, the market is looking for a decision and any compromise will help provide a clearer picture for the future."

The differences over how to resolve the "fiscal cliff" narrowed significantly Monday night as, in its most dramatic position change yet, the White House proposed leaving lower tax rates in place for everyone except those earning US$400,000 and above, a source familiar with the talks said.

That's up from the US$250,000 threshold the president has been demanding for months, but still far from Republican House of Representatives Speaker John Boehner's preference of US$1m.

The possible end to the stalemate comes as data points to a revival in demand in China, renewing investor optimism over the world's top two oil consumers.

"We have also seen an improvement coming from China. Their refinery output is increasing and that is leading to higher imports," Emori said. "That is also supporting prices."

Brent is expected to rebound to US$109.02 per barrel, as it did not break a support at US$107.54, while US oil may break a resistance at US$87.77 and rise into a range of US$88.28 to US$88.37, Reuters technical analyst Wang Tao said.

The spread between the two contracts fell by more than US$2 on Monday to about US$20 per barrel on news that a pipeline to transport crude between Cushing, Oklahoma, and Houston, Texas, will be expanded starting next month.

Enterprise Products Partners LP and partner Enbridge Inc said they plan to expand the 150,000 barrel per day Seaway pipeline to 400,000 bpd by next month and to 850,000 barrels a day of crude by early 2014.

A glut of crude in Cushing has contributed to the heavy discount of U.S. West Texas Intermediate (WTI) crude futures to Brent which widened to more than US$25 per barrel last month.

The increased capacity will allow more crude from Cushing to the Gulf Coast, where it fetches prices closer to Brent.

Meanwhile, a drawdown of inventories by US refineries for year-end tax purposes may result in a lower reading for stockpiles data due on Tuesday, a Reuters poll showed.

Crude stocks may have dropped by 1m barrels in the week ended December 14, the poll showed.

Join the Discussion

Disclaimer:The view expressed here by our readers are not necessarily shared by Arabian Business, its employees, sponsors or its advertisers.

Please post responsibly. Commenter Rules

  • No comments yet, be the first!

Enter the words above: Enter the numbers you hear:

All comments are subject to approval before appearing

Further reading

Features & Analysis
Dubai gold dealers shun Turkish bars on fear of links to Iran

Dubai gold dealers shun Turkish bars on fear of links to Iran

Trade in Turkish gold bars to Iran via Dubai is drying up as...

Glitter, glamour and gold

Glitter, glamour and gold

Gold has long been seen by experts as a hedge against rising...

Turkish gold trade booms to Iran, via Dubai

Turkish gold trade booms to Iran, via Dubai

Couriers carrying millions of dollars worth of gold bullion in...

Most Discussed
  • 15
    Germany puzzled as UAE think tank ordered to close

    Matt, your words sound kind of funny given the role the Britain has played in this region for so many decades.
    And given the democratic tradition that... more

    Thursday, 17 April 2014 7:10 PM - one of the joes
  • 10
    UAE father who whipped son to death wins appeal

    "Under Sharia, a parent cannot be executed for killing their child"
    A spouse could be executed if he/she kills his/her spouse, as none of them is... more

    Friday, 18 April 2014 3:38 PM - Nihar
  • 3
    To diet or not to diet?

    It is best to eat by your blood type. Following this diet is miraculous. Generic diets don't always work as certain foods are not good for the individual... more

    Friday, 18 April 2014 11:49 AM - Shamira Mitha
  • 54
    Three UAE women attacked with hammer at London hotel

    I really feel that Arabian Business.Com should now close this comments page. This should be all about sympathy for the families not what it is/has turned... more

    Wednesday, 16 April 2014 1:06 PM - Adrienne
  • 51
    Why Dubai isn't a plastic city

    What is definitely not a plastic city. The Arabs have a culture dating back to several centuries. 50 years back Dubai was just a fishing village. Today... more

    Tuesday, 8 April 2014 3:49 PM - P. MADHUSUDAN
  • 48
    DMCC boss Ahmed Bin Sulayem entertains Robert Mugabe in Dubai

    @fga ''However today, simply because he decided to dispossess a few white farmers of their land and redistribute to the poorer indigenous blacks'' more

    Sunday, 13 April 2014 3:02 PM - Matt Williams