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Crude below $87.00 on U.S. fiscal cliff concerns; OECD cuts growth forecasts

Publish Date28/11/2012 08:13:24 AM

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Crude below $87.00 on U.S. fiscal cliff concerns; OECD cuts growth forecasts

Concerns over whether U.S. lawmakers will be able to reach an agreement to avoid the looming “fiscal cliff” are weighing heavily on the energy market, yet the supply worries due the tensions in Egypt kept prices from falling further.

The White House and Congress continue their negotiations over the fiscal cliff that will automatically take effect in January if no deal is found, threatening to push the world’s largest oil consumer into recession in 2013, darkening the outlook for oil demand.

The outcome of the negotiations continues to be unclear as the Republicans in the U.S. Congress hold firm against the income tax rate increases for the wealthy that Democrats seek, and if they accept some increase, it might come with a cost.

Meanwhile, the escalating political crisis in Egypt triggered worries about a possible disruption to supplies from the Middle East, preventing oil prices from falling further. Protests over President Mohamed Mursi’s attempt to grant himself new powers continue.

“When you see the protests on the streets in Greece the markets drop, but when you see the thousands of people gather in the streets of Egypt, the markets get nervous and jump. Protests in Egypt and tensions in the Middle East send prices upwards and make it even more difficult for the global economy to sustain a recovery”, said broker Carl Larry.

Although the Greek debt concerns faded after European finance ministers and the IMF agreed to release another tranche of loans for Greece, brightened the outlook for the region’s recovery, worries over the outlook for oil demand persisted.

The Organization for Economic Cooperation and Development (OECD) cut its global growth forecasts, and warned that the debt crisis in the euro zone is the greatest threat to the world economy. A weak economic growth would likely hurt demand for energy.

The OECD said the eurozone will contract 0.4% this year, worse than May`s 0.1% forecast. The U.S. was also downgraded even if the White House and Congress strike a budget deal before Jan. 1 and avoid the $600 billion of automatic tax hikes and spending cuts.

Adding to the downside pressures on oil prices was the report that showed rising stockpiles in the U.S. Data released by the American Petroleum Institute late Tuesday showed crude stockpiles rose by 2 million barrels for the week ended Nov. 23.

Markets are now eying the weekly oil report released by U.S. Energy Information Administration later in the day, awaiting hints on demand levels from the world’s largest oil consumer.

Since yesterday’s gains couldn’t be sustained, crude oil is seen trading below the $87.00 level as of this writing. Crude is at $86.95 per barrel, with the highest at $87.34 and the lowest at $86.91. Brent is trading around $109.80 after falling 0.06%.

On the short term crude oil faces a support at $86.90, which if breached the next support will be at $86.25 and then at $85.65. Meanwhile, a resistance is found at $87.70, if breached it will head for the next resistance found at $88.10.

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