Crude oil prices declined during the Asian trading hours Thursday as renewed concerns about the fiscal cliff weighed on sentiment.
Light sweet crude for February delivery declined 0.36 percent or 32 cents to $89.66 a barrel in electronic trading on the New York Mercantile Exchange during the Asian trading hours. Brent crude oil futures for the February delivery fell 0.24 percent or 28 cents to $110.08 a barrel on the ICE futures exchange in London.
Oil futures declined from the two month high as stalled fiscal cliff negotiations gave traders reason to pause after the recent rally. Sentiment turned negative overnight as President Barack Obama and congressional Republicans are struggling to make progress in reaching an agreement to avert the fiscal cliff and prevent the scheduled rise in tax rates and spending cuts from pushing the economy into a recession early next year.
"Negotiations are (not progressing) which is probably why we're seeing a sell-off today and the risk sentiment coming off. The markets are being directed by sentiment from the U.S. fiscal cliff talks and so that will have the biggest influence on prices at the moment," Natalie Rampono, a commodities analyst at ANZ in Melbourne, told Reuters.
Concerns over the fiscal cliff resurfaced as Republican Speaker Boehner expressed his intension to put his Plan B cliff solution, which contains a tax hikes for incomes over $1 million, to the House this week while President Obama has already said he will veto any plan put forward by the Republicans to tax only those earning more than $1 million rather than the much lower threshold demanded by Obama.
“The lack of traction in concluding any agreement leaves a limited amount of time before year end, with markets likely to become more nervous by the day. This could still threaten the solid rally in risk assets registered over recent weeks,” said a note from Credit Agricole.
Crude futures advanced Wednesday after the U.S. Energy Department’s weekly petroleum inventory report Wednesday showed fuel demand hit the second highest level for the year last week while domestic stocks of crude oil fell by 964,000 barrels to 371.6 million in the week ended Dec. 14.
Light sweet crude for the January delivery gained 1.8 percent or $1.58 and settled at $89.51 a barrel on the New York Mercantile Exchange while Brent crude for the February delivery rose $1.56 and settled at $110.40 a barrel.