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Brent Crude Futures Drop Amid Disagreement in U.S. Budget Talks

Dec. 17 (Bloomberg) -- Brent crude fell for a second time in three days amid concern that deadlock in U.S. budget talks may threaten to curb economic growth and fuel demand.

The North Sea benchmark dropped as much as 45 cents, reversing earlier gains. European stocks declined for a third day on concern U.S. lawmakers won’t agree to a budget before more than $600 billion in tax increases and spending cuts known as the fiscal cliff start taking effect in January. The Stoxx Europe 600 slid 0.3 percent to 278.53, while indexes in the U.K., Germany and France slumped.

“Debt reduction negotiations in the U.S. congress continue to cloud the macro outlook going into 2013,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in a note. “Oil investors would prefer to wait on the sidelines until this is resolved before placing large bets.”

Brent for February settlement fell 25 cents, or 0.3 percent, to $107.91 a barrel on the London-based ICE Futures Europe exchange as of 12:30 p.m. local time. The January contract settled $1.24 higher at $109.15 when it expired Dec. 14. The European grade was at a premium of $20.70 to WTI, down from $22.42 on Dec. 14.

West Texas Intermediate crude for January delivery was at $86.67 a barrel, down 6 cents, in electronic trading on the New York Mercantile Exchange. Front-month prices advanced 0.9 percent for the week ended Dec. 14.

Brent-WTI Spread

WTI has fallen 12 percent in 2012 as the U.S. shale boom deepened the glut at Cushing, Oklahoma, America’s biggest storage hub and the delivery point for Nymex futures. That has left it at an average discount of $17.36 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 risen 0.5 percent this year.

Money managers lowered net-long positions, or wagers on higher U.S. oil prices, by 21 percent in the seven days ended Dec. 11, according to the Commodity Futures Trading Commission’s Dec. 14 Commitments of Traders report. It was the biggest drop since the week ended May 8.

“This is in line with falling WTI prices over that week and also an apparently growing perception that the market will be oversupplied in the months to come,” Vienna-based researcher JBC Energy GmbH said today in a note.

Factory Output

Output at U.S. factories, mines and utilities increased 1.1 percent last month after a revised 0.7 percent drop in October that was more than initially estimated, the Federal Reserve reported Dec. 14. Economists forecast a 0.3 percent advance, according to a Bloomberg survey. Manufacturing also surged 1.1 percent in November, the most this year.

In China, a preliminary purchasing managers’ index by HSBC Holdings Plc and Markit Economics indicated a reading of 50.9, for December, higher than a median estimate of 50.8 in a Bloomberg survey. It followed a reading of 50.5 in November, which was above the expansion-contraction dividing line of 50 and was the first growth in 13 months.

China will consume 9.9 million barrels a day of oil, 115,000 more than previously projected, in the last three months of this year, the International Energy Agency said in a Dec. 12 monthly report.

“Demand is affected by the good numbers for manufacturing in the U.S. and China,” Fahad Alturki, Riyadh-based senior economist at Jadwa Investment Co., said in a telephone interview yesterday.

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