Oil prices fell on Thursday as concern about the rising risk of US recession given the lack of a deal to avert mandated 2013 tax increases and spending cuts countered support from positive weekly US employment data. With the front-month January contract approaching expiration set for Friday, Brent crude's losses were deeper than for its US counterpart.
The stagnant negotiations between the White House and US Congress on a budget for next year has limited the bullish response to the US Federal Reserve announcement of plans for more monetary stimulus, which helped send Brent and US crude futures up more than 1 percent on Wednesday.
Speaker of the US House of Representatives John Boehner charged on Thursday that the White House seems willing to "slow-walk our economy right up to - and over - the fiscal cliff," underscoring the lack of progress in the talks with the White House. "The US data took our minds off the fiscal cliff for a few moments, but the possibility that going over the cliff might cause a recession continues to limit crude prices, along with high inventories and relatively warm temperatures in the US," said Phil Flynn, an analyst at Price Futures Group in Chicago.
US initial jobless claims were 343,000 last week, a near four-year low and well below the previous week's 370,000. Meanwhile, a separate government reports showed retail sales rebounded in November, providing another hopeful sign for an economy that has appeared to sputter in the fourth quarter.
Brent January crude fell $1.13 to $108.37 a barrel at 2:01 pm EST (1901 GMT), having traded from $108.21 to $109.52. Brent was on pace to post a weekly gain, but as year-end approaches, front-month Brent prices need to finish above $107.38 to post a gain for 2012. While uncertainty and turmoil in the Middle East continue to fuel worries about the potential for supply disruptions in the region and limit any oil price slide, robust US oil inventories and tepid demand have helped keep prices in check. US January crude was down 37 cents at $86.40 a barrel, having traded from $86.06 to $86.97.
While US crude was also headed for a weekly gain, it remained on track to end the year down around 12 percent from its 2011 close of $98.83. US heating oil and RBOB gasoline futures slipped on Thursday, after prices jumped more than 1 percent on Wednesday on news that a small fire shut a crude unit at Motiva's Port Arthur, Texas refinery. Opec agreed on Wednesday to retain the producer group's 30-million barrels-per-day output target despite the prospect of rising inventories in the first half of next year.
"It became clear once again that the cartel is relatively unwilling to act, especially when prices are high," Commerzbank commodity analysts said in a note. The target is higher than is required from Opec to meet demand next year, some market observers say, but the excess supply has cushioned the impact on prices from a drop in Iranian oil exports due to sanctions.