BLBG: Crude Oil Increases to a 26-Month High as Obama Agrees to Extend Tax Cuts
Crude oil climbed to a 26-month high after President Barack Obama agreed to extend tax cuts, sending the dollar lower and bolstering demand for commodities.
Oil surged above $90 a barrel and gold rose to a record as Obama said he’ll agree to a two-year extension on all Bush-era tax cuts in a compromise he called “an essential step on the road to recovery.” The current tax rates, enacted in 2001 and 2003, are set to increase Dec. 31.
“This is effectively a new stimulus package, which should increase demand,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “The compromise will boost economic growth. The absence of an agreement would have resulted in fiscal tightening.”
Crude oil for January delivery increased 96 cents, or 1.1 percent, to $90.34 a barrel at 9:08 a.m. on the New York Mercantile Exchange. The contract touched $90.76, the highest intraday price since Oct. 8, 2008.
Brent crude oil for January settlement advanced 95 cents, or 1 percent, to $92.40 a barrel on the London-based ICE Futures Europe exchange. Futures reached $92.86, the highest level since Oct. 2, 2008.
The dollar declined 0.6 percent to $1.3386 per euro from $1.3308 yesterday.
An Energy Department report tomorrow will show that U.S. crude oil inventories declined 1.5 million barrels last week, according to the median of 13 analyst estimates in a Bloomberg News survey. Supplies of distillate fuel, a category that includes heating oil and diesel, dropped and gasoline stockpiles gained over the period, the survey showed.
The department is scheduled to release its weekly report at 10:30 a.m. tomorrow in Washington.
Excess Inventories
“In the U.S. itself the excess in inventories has come off very, very quickly,” said Amrita Sen, an analyst at Barclays Plc in London. “Over the last five or six weeks, you’ve eroded about 40 million barrels of inventories. It’s tightening, and it should continue to erode as we progress into the new year.”
The Organization of Petroleum Exporting Countries, responsible for 40 percent of global oil supplies, will meet to review its production quota on Dec. 11 in Quito, Ecuador. The group hasn’t changed its output target since 2008.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.
