Dec. 21 (Bloomberg) -- Oil declined the most in more than two weeks because of concern that U.S. lawmakers may fail to avert spending cuts and tax increases that threaten the economy of the world’s biggest crude consumer.
West Texas Intermediate dropped as much as 1.6 percent, paring a second weekly gain, after House Speaker John Boehner scrapped a plan to allow higher tax rates on annual income above $1 million, throwing talks on budget issues known as the fiscal cliff into turmoil. Oil rose a fifth day yesterday, the longest rally since September, after government data showed the U.S. economy grew at a 3.1 percent annual rate in the third quarter, higher than a previous estimate of 2.7 percent.
“We are seeing a negative reaction to Republicans rejecting the latest proposal on tax hikes,” Andrey Kryuchenkov, a commodities analyst at VTB Capital in London, said in an e-mail. “It could have a U.S. demand impact.”
WTI for February delivery fell as much as $1.45 to $88.68 a barrel in electronic trading on the New York Mercantile Exchange, the biggest drop since Dec. 6, and was at $89.23 at 12:21 p.m. London time. Prices are up 2.9 percent this week. The volume for all West Texas Intermediate futures today was about 4 percent lower than the 100-day average.
Brent for February settlement on the London-based ICE Futures Europe exchange slid as much as $1.05, or 1 percent, to $109.15 a barrel. The European benchmark crude was at a $20.47 premium to WTI, from $20.07 yesterday. The volume traded for all Brent futures today was about 33 percent lower than the 100-day average.
Goldman Sachs Group Inc. increased its forecast for Brent’s premium to WTI by $10 a barrel after a Bloomberg report that the upgrade of the largest crude unit at BP Plc’s Whiting refinery was delayed.
The bank cut its three-month outlook for the U.S. benchmark to $101 a barrel from $111, while leaving its target for Brent at $115, thereby moving the forecast for the Brent-WTI spread to $14 from $4.
WTI has dropped 9.7 percent in 2012 as the U.S. shale boom deepened the glut at Cushing, Oklahoma, America’s largest storage hub and the delivery point for New York futures. That has left it at an average discount of $17.44 a barrel to Brent this year, compared with a premium of about 7 cents in the five years through 2010. Brent, the benchmark grade for more than half the world’s crude, has climbed 2 percent this year.
The fiscal cliff refers to more than $600 billion in automatic spending cuts and tax increases are set to start in the U.S. next month unless an agreement to avert the measures is reached. The Congressional Budget Office has said that failing to resolve the issue would probably lead to a recession in the first half of 2013.
House members and senators won’t vote on the end-of-year budget issues until after Christmas, giving them less than a week to reach an agreement.
“The fiscal cliff is the key driver,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “The GDP figure helped to create a bit of confidence and perhaps caused some upward adjustments to growth forecasts.”
Crude also fell as a technical indicator showed futures have risen too quickly for further gains to be sustainable. On the daily chart, crude settled above its upper Bollinger Band yesterday for the first time since mid-September. The indicator was at $90 a barrel today. Investors typically sell contracts when the market is overbought.
Oil may advance next week as stronger demand for fuels reduces inventories, a Bloomberg survey showed. Twelve of 31 analysts and traders, or 39 percent, forecast crude will rise through Dec. 28. Eleven respondents, or 36 percent, predicted a decrease and eight forecast little change. Last week, 39 percent of those surveyed projected a decline.