Crude oil falls below US$93 as fiscal cliff rally fizzles, supplies grow

The price of oil fell back below US$93 a barrel on Thursday as euphoria over a U.S. fiscal deal fizzled and traders worried about ample crude supplies and lacklustre demand.

By early afternoon in Europe, benchmark West Texas Intermediate crude for February delivery was down 55 cents to US$92.57 a barrel in electronic trading on the New York Mercantile Exchange.

The contract rose $1.30 to finish at US$93.12 a barrel on the Nymex on Wednesday as prices jumped after a deal in Washington averted the dreaded “fiscal cliff” of automatic tax increases and spending cuts.

Despite the stop-gap budget deal, more hurdles are ahead for the U.S. economy, including a new deadline for more spending cuts in two months.

Moreover, Moody’s Investors Services said the U.S. government’s “AAA” credit rating could be at risk if lawmakers fail to take additional steps to lower the deficit, which has topped $1 trillion annually in each of the past four years.

The International Monetary Fund also urged Washington to keep working on raising revenues and cutting spending to put “U.S. public finances back on a sustainable path without harming the still fragile recovery.”

Meanwhile, investors were also gauging the underlying dynamics of the global energy market, which suggest demand is weak and supplies are rising.

Platts, the energy information arm of McGraw-Hill Cos., expects data due this week from the U.S. Energy Information Agency and the American Petroleum Institute to show a one-million-barrel draw for the week ended Dec. 28. Still, the U.S. market is “well-supplied,” Platts said, citing analysts.

U.S. supplies, at 371 million barrels for the week ended Dec. 21, are 15.6 per cent higher than the five-year average, Platts said, citing EIA data. For the same week, data showed U.S. production at nearly seven million barrels a day, the highest since December 1993.

Carl Larry of Oil Outlooks and Opinions said production levels were “at new highs” and noted that “the room for demand to expand is not even close to what we had just a few short years ago before the global recession.”

Oil prices were also dented by the rising dollar as investors steered away from riskier assets. The euro was down sharply to US$1.3102 on Thursday from $1.3189 on Wednesday. A stronger dollar makes crude more expensive — and a less attractive investment — for traders using other currencies.

Brent crude, used to price various kinds of international oil, was down 37 cents at US$112.10 a barrel on the ICE Futures exchange in London.

In other energy futures trading on the Nymex, wholesale gasoline fell 0.62 of a cent to US$2.7889 a U.S. gallon (3.79 litres), heating oil lost 2.24 cents to US$3.0239 a gallon and natural gas declined 1.4 cents to US$3.219 per 1,000 cubic feet.