Crude Prices Ease as Failed Cliff Talks Likely to Stem U.S. Demand (USO) (OIL)

December 27, 2012 10:51 AM EST Send to a Friend
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Crude prices are pulling back a little on the session Thursday as investors remain cautious into fiscal cliff talks.

Contracts for February are down $0.28 to $90.70 per barrel after gaining over $2 per barrel on Wednesday's session to a new two-month high.

Yesterday, Treasury Secretary Tim Geithner cautioned that the U.S. would hit its debt limit on Monday, though the Treasury was taking "extraordinary measures" to buffer the cieling by about $200 billion. Geithner noted that the buffer would last about two months under normal circumstances, but "given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures."

Thursday, Sentate Majority Leader Harry Ried commented that the U.S. was probably going to go over the cliff.

Lawmakers on both sides of the aisle have been struggling to come to an agreement over concessions that would appease both parties. About $600 billion in tax hikes and spending cuts will trigger on January 1st, affecting the middle class and business owners to a large extent.

Demand for crude is expected to be tempered if an agreement cannot be reached. Business will likely curb hiring with current payrolls getting more expensive while consumers will be shelling out a greater portion of paychecks in taxes, leaving less leftover for spending and saving.

Traders are keeping an eye on the United States Oil (NYSE: USO) and iPath S&P GSCI Crude Oil TR Index ETN (NYSE: OIL) ETFs.


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