Oil price slips below $111 on US fiscal crisis concerns

Brent crude price holds steady on Thursday as jittery investors stay on the sidelines

Brent crude oil slipped below $111 a barrel on Thursday as nervous investors watched talks to avert a US budget crisis that could push the world's biggest economy back into recession.

US President Barack Obama and the Republicans resumed talks on Wednesday over the so-called fiscal cliff - tax hikes and spending cuts slated to take effect next week that could push the economy back into recession.

"There is no easy way to resolve the US fiscal cliff, but there should be a compromise at some point and that's what the market is looking for," said Tetsu Emori, a commodity fund manager at Astmax in Tokyo.

Brent was down 37 cents to $110.70 per barrel by 12.45pm UAE, after gaining 2 percent in the previous session. US crude gained 10 cents to $91.08, after rising to a nine-week high on Wednesday.

Oil futures rose in early Asian trade, taking a cue from Japanese stocks, which were at an 18-month high after the country's new prime minister said beating deflation in the world's No. 3 oil consumer and taming a strong yen were his top priorities.

"There are hopes that the caressive fiscal policies will help Japan get out of deflation and, as it is an importer of commodities, that's a positive for oil markets."

The government will pursue bold monetary policy, flexible fiscal policy and a growth strategy to encourage private investment, Prime Minister Shinzo Abe said on Wednesday.

The White House and Republicans are still far apart, as hopes for legislation to prevent the US economy from tumbling off the fiscal cliff switch to the Senate.

Democrats control a majority in that chamber but still need some support from Republicans across the aisle for a likely attempt to raise taxes on the wealthy.

Obama will try to revive budget crisis talks - which stalled last week - when he returns to Washington on Thursday after cutting short his Christmas holiday in Hawaii.

"While markets have vacillated between optimism and pessimism over the prospects for a compromise, we expect a deal only at the last minute, with lots of decisions delayed into the New Year and austerity of roughly 2 percent of GDP," Bank of America-Merril Lynch analysts said in a report last week.

Oil futures may rise in the first quarter of 2013 with the global economy showing early signs of a pick-up, and on expectations that the fiscal crisis will be resolved.

Encouraging economic data from China, aggressive action by the European Central Bank to help out its crisis ridden economies and quantitative easing by the US Federal Reserve together brighten the outlook for oil in the near-term.

U.S. crude could rise to $100 per barrel and Brent may test $120 by the end of March, said Emori.

Also supporting prices are expectations that US crude stockpiles may have decreased last week as refiners kept inventory low for year-end tax purposes.

Crude stocks may have dropped by 1.9 million barrels in the week ended Dec 21, a Reuters poll showed on Wednesday.

Inventory data from the American Petroleum Institute will be released on Thursday, while numbers from the Energy Information Administration will be out on Friday, a day later than usual, because of the Christmas holiday on Tuesday.

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