Crude Oil On Hold Ahead of Inventory and US Deal

Yesterday, in a thin market with most European markets closed for Boxing Day, crude oil prices gained by 2.7 percent taking cues from expectations that US President Barack Obama will resume talks to avoid spending cuts and tax gains which can threat the economy. Additionally, weakness in the DX also supported an upside in the oil prices.

Crude oil prices touched an intra-day high of $91.30 and closed at $91.08. Oil prices were also supported by some upbeat macroeconomic home prices data from the U.S. and supply concerns of reduced outflow from the Kurdish regions in Iraq. In other news the United Arab Emirates had apprehended members of an alleged terrorist cell. Nevertheless, investors were also wary of Iran resuming military exercises near the Straits of Hormuz, which is a major route for world oil supply. Gains accelerated after United Arab Emirates security forces arrested members of a cell that was planning to carry out terrorist attacks. Saudi Arabia assisted in uncovering the terrorist cell. Security forces arrested “a cell from the deviant group, comprising citizens from both countries, that was planning on carrying out actions that infringe on the national security of both countries and sisterly nations,” the news service reported.

This morning in the Asian trading session oil fell 0.12% erasing its earlier gains as the U.S. Congress prepared to assemble to discuss a budget solution to meet a year-end deadline; however investors remain cautious. The deal that seems possible to fix the US budget is getting smaller and smaller. Five days before a deadline that would trigger more than USD600 bn in tax increases and spending cuts that could cause a US recession, Congress will return Dec. 27 amid calls for action in the Senate. The politics of progress there are easier than in the Republican-controlled House of Representatives, which balked last week at Speaker John Boehner’s plan for tax increases on income above USD1 million.

In a report delayed due to the holiday, the American Petroleum Institute (API) is scheduled to release its weekly inventories today and US crude oil inventories are expected to decline by 1.9 million barrels for the week ending on 21st December 2012. Gasoline stocks are expected to rise by 0.4 million barrels and distillate inventories are expected to fall by 0.9 million barrels for the same week.

U.S. natural gas futures ended higher on Wednesday, underpinned by chilly U.S. weather forecasts for the next week a freezing temperature set in the east and the south. Traders are hoping to see an increase in residential demand. Expect Natural Gas prices to go up as heating demand is likely to push natural gas prices up. Natural gas futures on the New York Mercantile Exchange, ended up 4.6 cents, or 1.4 percent, at $3.392 after trading between $3.30 and $3.408