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Oil futures creep lower with all eyes on ' cliff' talks

NEW YORK -- Crude-oil futures traded lower in thin trading Monday, as traders awaited the outcome of talks to resolve the budget impasse in Washington.

Light, sweet crude for February delivery slipped 30 cents, or 0.3%, to $90.50 a barrel on the New York Mercantile Exchange. Brent crude was off 82 cents, or 0.7% at 109.80 a barrel the ICE futures exchange.

Traders were cautious on the final day of trading in 2012, with the focus on congressional negotiations in Washington to stave off the so-called fiscal cliff. Weeks ago, it appeared unthinkable that Congress would allow the automatic package of deep spending cuts and tax increases to take effect Wednesday. But with still no agreement in Congress, it is appearing increasingly possible the spending cuts and tax increases could take effect.

"It seems like this fiscal cliff is carrying the bulk of everyone' s expectations," said Peter Donovan, vice president of oil-options brokerage Vantage Trading in New York. "It' s tough not to be pessimistic. If they are able to patch together some deal, it' s going to be very weak" in terms of getting the nation' s fiscal house in order.

Oil-market participants have been following the fiscal-cliff talks because they are concerned the spending cuts and tax increases could impede the economic recovery in the U.S.--the world' s biggest oil consumer--thereby denting oil demand.

The cuts increasingly looked like a possibility after Senate leaders failed to reach a deal in talks that carried into Sunday. President Barack Obama said in remarks Sunday failure to reach an agreement could badly hurt the economy.

Oil futures got a bullish cue out of China overnight. The HSBC China Manufacturing Purchasing Managers' Index rose to a final reading of 51.5 in December from 50.5 in November, signaling the manufacturing sector in the world' s second-largest oil consumer continued to pick up steam.

High inventory levels in the U.S. weighed on prices. Friday, the Energy Information Administration said oil stockpiles last week fell 600,000 barrels, compared with expectations for a much-larger drop of 1.9 million barrels. Inventories are up 13% from year-earlier levels, the EIA said, as surging production in the Midwest continues to swamp demand.

At the key oil hub of Cushing, Okla., the settlement point for the Nymex benchmark, stocks rose 2.2 million barrels to a record 49.2 million barrels. Elevated inventories at Cushing have helped keep the gap between the Nymex contract and its Brent counterpart elevated--recently at about $20 a barrel--recently.

Analysts at JBC Energy noted the contracts are on track to end the year in different directions.

"Assuming no big fluctuations in prices today, Nymex WTI will post an annual loss of some $8 per barrel this year--the first annual loss since 2008," the analysts wrote in a research report Monday. "On the contrary, ICE Brent is due to post an annual gain in the range of a couple of dollars."

January reformulated gasoline blendstock, or RBOB, recently traded down 0.7% at $2.78 a gallon. January heating oil was off 0.8% at $3.0215 a gallon.

Dow Jones Newswires



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