Oil rises for 2nd day in New York on fiscal deal speculation

OIL PRICES ROSE for the second day on optimism that Republicans and Democrats are nearing a budget agreement.  / BLOOMBERG FILE PHOTO/PHIL WEYMOUTH
OIL PRICES ROSE for the second day on optimism that Republicans and Democrats are nearing a budget agreement. / BLOOMBERG FILE PHOTO/PHIL WEYMOUTH

WASHINGTON – Oil rose for a second day in New York on speculation that Republicans and Democrats are getting closer to a budget agreement.
Prices gained as much as 1.1 percent as House Speaker John Boehner proposed to raise tax rates on household income above $1 million a year in exchange for containing entitlement program costs. Boehner previously opposed higher rates for any income level. President Barack Obama, who wants them to start at $250,000, rejected the offer.
“There is some progress with Boehner indicating a tax increase,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “We are moving closer to a resolution here and that’s helping to stabilize things.”
West Texas Intermediate crude for January delivery advanced 71 cents, or 0.8 percent, to $87.44 a barrel at 12:48 a.m. on the New York Mercantile Exchange. The increase is the fourth in five days.
Brent for February settlement fell 20 cents to $107.98 a barrel on the London-based ICE Futures Europe exchange. Brent’s premium to WTI based on the February contracts narrowed to $20.16 a barrel from $20.93 on Dec. 14.
The Brent-WTI spread declined as Enterprise Products Partners LP expects to begin operating the expanded Seaway oil pipeline in early January. Seaway reversed its flow in May to carry crude to Houston from Cushing, Oklahoma, the delivery point for New York oil futures.
Shale boom
WTI has declined 12 percent in 2012 as the U.S. shale boom deepened the glut at Cushing, America’s biggest storage hub. That has left it at an average $17.35 below Brent this year, compared with a premium of about 95 cents in the 10 years through 2010. Brent, the benchmark grade for more than half the world’s crude, has risen 0.5 percent this year.
In his latest offer, Boehner also said he would accept $1 trillion in new revenue, up from $800 billion, according to a person familiar with the talks who requested anonymity when discussing the negotiations. That person said Boehner’s offer would pair the revenue increase with equal cuts to entitlement programs.
“You are getting some optimism that there will be a fiscal deal,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “The overall sentiment is getting better and more hopeful.”

Budget talks
Members of Congress are starting to talk about the benefits of waiting until January to reach a budget deal. There are two weeks remaining to avert more than $600 billion in automatic spending cuts and tax increases, known as the fiscal cliff, set to start Jan. 1. The Congressional Budget Office has said a failure to prevent those changes may lead to a recession in the first half of 2013.
The oil market is focusing on “the macroeconomic picture,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York, in an e-mail. Equities advanced, with the Standard & Poor’s 500 Index gaining as much as 1 percent.
Prices also rose on speculation that the Federal Reserve will maintain low interest rates to stimulate the economy after manufacturing in the New York region shrank more than forecast in December. The Federal Reserve Bank of New York’s general economic index dropped to minus 8.1, the fifth month of contraction, from minus 5.2 in November.
‘Raising hopes’
The Fed said last week that interest rates will stay low “at least as long” as unemployment remains above 6.5 percent and if inflation is projected to be no more than 2.5 percent. The thresholds replace the Fed’s earlier view that rates would stay near zero at least through the middle of 2015.
“They put the continuity of their monetary easing on the unemployment number and the economy and the negative empire manufacturing number is raising hopes for more stimulus,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago.
Money managers lowered net-long positions, or wagers on higher U.S. oil prices, by 21 percent in the seven days ended Dec. 11, according to the Commodity Futures Trading Commission’s Dec. 14 Commitments of Traders report. It was the biggest drop since the week ended May 8.

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