Oil prices fall

Oil prices fell on Thursday as the downside risk to the euro zone economic outlook reinforced worries about demand for petroleum, while uncertainty about budget negotiations in the United States continued to stoke investor caution. The European Central Bank left interest rates unchanged at a record low 0.75 percent on Thursday and ECB President Mario Draghi raised the prospect of more weakness in the region.
"The Governing Council continues to see downside risk to the economic outlook for the euro area," Draghi told a news conference after an ECB policy meeting. The dollar index strengthened and the euro fell versus the dollar and the yen on the lowered growth forecast for 2013. A stronger US currency usually puts pressure on dollar-denominated commodities like oil.
Brent January crude fell $1.76 to $107.05 a barrel by 11:33 am EST (1633 GMT), having slumped as low as $106.80. US January crude was down $1.80 at $86.08 a barrel, having fallen as low as $85.77 during the session. Prices for both crude contracts were on pace to post weekly losses of more than 3 percent.
"Downward movement has been pretty consistent this morning, and additional volume from the opening of the New York open outcry session I'm sure accelerated it, and the ECB keeping rates steady helped as well," said Michael Fitzpatrick, editor-in-chief at industry newsletter EnergyOverview in New York. US RBOB gasoline and heating oil also fell on Thursday, under pressure again after the Energy Information Administration's weekly inventory report on Wednesday showed sharp increases in fuel stockpiles.
The EIA data helped push gasoline futures down nearly 2 percent on Wednesday. While budget negotiations continue in Washington, looming mandated US tax increases and spending cuts, the so-called "fiscal cliff," remain a threat to slow the world's largest economy and dent demand in the world's top oil consumer.
The number of Americans filing new claims for unemployment benefits fell for a third straight week, a report showed on Thursday, dropping back to their pre-Hurricane Sandy range. Initial claims for state unemployment benefits dropped 25,000 to a seasonally adjusted 370,000. Thursday's jobless claims data followed private payrolls processor ADP's report on Wednesday showing private-sector employers added 118,000 jobs in November, fewer than expected.
Those employment gauges arrived ahead of the closely watched US November non-farm payrolls report due on Friday. Non-farm payrolls are expected to have increased by only 93,000 last month, with storm disruptions and fears of fiscal cliff-induced austerity hobbling company hiring.
Wednesday's EIA report, while showing crude stocks fell, revealed big builds in refined oil products, with gasoline stocks registering the biggest increase since 2001, up 7.86 million barrels. US stocks of distillates - including diesel fuel and heating oil - also rose. US inventory levels will be a factor considered by Opec oil ministers at the group's meeting next week to consider market share and production policy.
"The question is, will Opec actually cut production which they should and need to do in the first half of 2013," said Bjarne Schieldrop, chief commodity analyst at SEB. "People are also thinking more about softer seasonal demand in the first half of the year." Oil's price slide may be limited by Egypt's struggle over its future.
Israel's plans to build more settlements in the West Bank prompted the European Union to summon Israel's envoy on Wednesday and helped reinforce fears about the potential for the region's conflicts to disrupt oil supply. Syria's civil war and the dispute between Iran and Israel and the West over Tehran's nuclear program remain factors adding to oil's geopolitical risk premium.