Positive Remarks from Chinese and US Leaders Support Crude Oil

Crude oil prices declined to close below $88 per barrel, as some disappointing economic data, a stronger dollar and hefty spike in last week’s US gasoline supplies pushed prices lower. Oil declined 0.04% on the NYMEX after a government report showed U.S. gasoline inventories increased the most in 11 years. Crude supplies decreased by 2.4mn barrels to 371.8mn barrels, Gasoline supplies increased by 7.9mn barrels to 212.1mn barrels and Supplies of distillate fuel, which include diesel and heating oil, grew by 3mn barrels to 115.1mn barrels, as per EIA report.

President Obama assured investors yesterday, that US policy makers would reach a deal to avoid financial disasters come Jan 1, 2012. Speculators are paying little attention to the rhetoric and jawboning by US lawmakers ahead of a final deal, as they are setting up their future election platforms and sound bites.

On Wednesday, the UK Chancellor issued the Autumn statement, giving a negative view of the current economy and budget, which was followed by a downward revision of UK growth. Today, the ECB is expected to also issue a downward revision for eurozone growth for 2012 and 2013.

Crude oil prices continue to decline on demand concerns but the downside is capped as the inventories yesterday were down and supported the prices. Prices were also buoyed when the new Chinese leader assured markets that he would continue to current domestic and external programs.  China’s leadership signaled it’s ready to boost stimulus if economic growth falters in the world’s second- biggest crude-consuming nation. 

Saudi Arabia is asking refiners in Asia to pay more for their January-loading crude, both in absolute terms and also relative to their counterparts in Northwest Europe. While this may seem unfair to Asian processors, the increase in official selling prices (OSP) by Saudi Aramco is also a sign of the relative health of the region compared to Europe. But the Saudis are now risking shrinking refinery profits in Asia by too much, as happened earlier this year, increasing the likelihood that the OSP premium will be lowered early in 2013.

Oil prices turned mixed in Asian trade this morning on signs of weaker US energy demand and as positions hardened in a fiscal showdown in Washington that could push the world’s biggest economy back into recession. 

Natural gas rallied more than 4.5% on NYMEX, on forecasts for colder weather even as meteorologists remained unsure of exactly how much colder it would get. Natural gas inventories are expected to decline by 50-60bn cubic feet, actual data will be released by EIA later today. Natural gas has tumbled from 3.99 last week to trade at 3.63 this morning