Oil rises in Asia on budding fiscal cliff optimism

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Investing.com - Oil futures rose slightly in Asian trading Wednesday as U.S. policymakers gave traders hope the world's largest economy is making progress toward averting the fiscal cliff.

On the New York Mercantile Exchange, light, sweet crude futures for February delivery added 0.02% to USD88.42 per barrel in Asian trading Wednesday. Crude traded as high as USD88.50 per barrel and as low as USD88.34.

During Tuesday's U.S. session, crude added 0.81% to settle at USD88.38, the third consecutive day of gains. In the past three U.S. sessions, West Texas Intermediate has surged 2.3%.

Oil also got a lift from one solid U.S. economic data point. In U.S. economic news, the National Association of Home Builders said its NAHB/Wells Fargo Housing Market index of home builder sentiment jumped to 47 this month from a revised 45 last month. Economists expected a December reading of 47. The December reading is the best since April 2006, but readings below 50 indicate a majority of builders hold an unfavorable outlook.

Residential real estate is an integral component of the U.S. economy and increased housing demand viewed by some market participants as a positive sign for oil demand as the U.S. is the world's largest oil consumer.

Oil also got a lift from speculation that U.S. lawmakers are moving closer to solving the fiscal cliff. If the fiscal cliff sets in after January 1, 2013, it is widely expected the subsequent tax increases and spending reductions could shave 4% to 5% off U.S. GDP, sending the economy there into another recession. Another U.S. recession would likely be highly damaging to oil prices.

While no agreement has been finalized, the Obama Administration and Congressional Republicans continue negotiations about averting the fiscal cliff and that alone seems to be giving traders reason to bid up riskier assets.

The sticking points appear to be from where spending cuts will come and the income threshold at which taxes will rise. President Obama has proposed raising taxes on those earning more than $400,000 per year while House Speaker John Boehner has proposed increased taxes for those earning $1 million or more per year.

Elsewhere, Brent crude futures traded on the ICE Futures Exchange fell 0.1% to USD108.82 per barrel

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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