Oil dropped as euro-area finance ministers met to negotiate a bailout payment for Greece and as American leaders prepared to wrestle with a budget agreement.
Futures declined 0.6 percent as officials gathered in Brussels to discuss Greek aid less than a week after a meeting failed to yield an agreement. Republicans and Democrats in the U.S. need to find a budget compromise to avoid triggering $607 billion in tax gains and spending cuts in January that the Congressional Budget Office said could lead to a recession.
“The outcome of the European finance ministers’ meeting is the main focus of the markets today,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “Given the direction the market is moving, it appears most people aren’t expecting a positive outcome.”
Crude oil for January delivery declined 54 cents to settle at $87.74 a barrel on the New York Mercantile Exchange. Prices are down 11 percent this year.
Brent oil for January settlement fell 46 cents, or 0.4 percent, to end the session at $110.92 a barrel on the London- based ICE Futures Europe exchange.
Finance ministers are dealing with the consequences of a Nov. 12 decision to give Greece two extra years, until 2016, to cut its budget deficit. At an overnight session lasting more than 11 hours a week later, the ministers failed to fill the resulting financing gap or show that Greek debt would drop to a target of 120 percent of gross domestic product by 2020, a condition set by the International Monetary Fund.
The European sovereign debt crisis began in Greece three years ago and has reduced economic growth and fuel demand as it spread to Ireland, Portugal, Italy, Spain and Cyprus.
A solution is hung up on politics in Germany, the dominant country in Europe’s crisis management, where Chancellor Angela Merkel is campaigning for a third term next year on the pledge that Greece won’t cost taxpayers an additional cent.
The European Central Bank is considering ways to help cut Greece’s funding gap by using the Greek debt in its investment portfolios, three euro-area officials said. The national central banks of the euro area hold Greek bonds in their investment portfolios and agreed in February to give any profits back to Greece. The issue has been reopened and the ECB is now looking at options, the officials said on condition of anonymity.
In the U.S., Republican lawmakers advocate raising federal revenue by limiting deductions rather than by raising rates to avert the so-called fiscal cliff, as Democrats push for higher taxes on upper-income earners.
Senator Richard Durbin of Illinois, the second-highest- ranking Democrat in the chamber, said yesterday on ABC’s “This Week” that any deal to cut the budget deficits should allow the top tax rate to rise. Republican Senator John McCain of Arizona said on “Fox News Sunday” that he opposed raising rates and advocated closing “loopholes,” by limiting deductions for charitable giving and home mortgage interest payments.
The Standard & Poor’s 500 Index (SPX) declined 0.4 percent and the Dow Jones Industrial Average fell 0.5 percent.
Oil rose 1.9 percent in New York last week because of concern that fighting between Israel and Hamas would spread and disrupt Middle Eastern crude shipments. Israel and Hamas agreed on a cease-fire brokered by Egypt and the U.S. that took effect Nov. 21, ending eight days of air and missile strikes that left more than 160 Palestinians and six Israelis dead.
Egypt’s president, Mohamed Mursi, will meet the nation’s judicial council today, the state-run Middle East News Agency reported, citing Yasser Ali, a presidential spokesman. Protests have taken place since Mursi issued a Nov. 22 decree that prevents his actions from being challenged by the courts.
Mursi’s announcement has triggered some of the biggest demonstrations since last year’s uprising against Hosni Mubarak. The Egyptian judiciary announced Nov. 24 that courts will suspend work until the decision is rescinded.
“The cease-fire is holding and the Middle East is relatively calm,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “It is interesting that after playing peacemaker, Mursi is now taking a page out of Mubarak’s book and trying to amass power.”
Electronic trading volume on the Nymex was 262,183 contracts at 3:36 p.m. Volume totaled 157,466 contracts on Nov. 23, the least since December 2008 and 70 percent lower than the three-month average. Open interest was 1.51 million. The exchange shut at 1:30 p.m. on Nov. 23, an hour earlier than usual, because of the U.S. Thanksgiving holiday.
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