Crude Rises For Third Day Amid Progress In US Budget Talks

News of progress in Washington on negotiations to avert the fiscal cliff triggered optimism and brightened the outlook for demand on oil, pushing crude oil higher for the third day above the $87.50 a barrel. President Barack Obama made an offer to Republicans in which he backed away from his long-standing call for raising tax rates on households making more than $250,000 a year, except those earning $400,000 and above, giving hope of a possible breakthrough.

U.S. lawmakers have until the end of December to reach a budget deal as in January the $600 billion of tax hikes and spending cuts scheduled to automatically start in January could throw the world’s largest oil consumer back into recession. But as negotiations have intensified in recent days, with both sides making significant concessions, the budget deal is expected to pass by the end of the year despite the remaining obstacles, as Republican John Boehner holds to his stand of $1 million.

“Traders are positioning for a reasonable outcome on the fiscal cliff… The outlook is for moderate economic growth, which I think is basically reflected in where the oil price is currently positioned”, said Ric Spooner CMC Markets, Sydney. Crude also rose as prices are tracking down the positive reactions in the equity markets, while optimistic is advancing ahead of the U.S. GDP report later this week that may show growth accelerated in quarter three more than previously expected.

The U.S. dollar gave an additional support to crude’s upside momentum, as the index fell on Tuesday for the third day towards the 79.50 level while the euro is steady at its highest since May at 1.3170.

The Energy Department report tomorrow may show crude supplies shrank last week while fuel stockpiles climbed. Crude probably fell 1 million barrels while gasoline supplies may have increased 1.9 million barrels and distillate probably climbed 1 million barrels.

Crude oil is trading as of this writing around the $87.75 from the opening at $87.44 and with the highest at $87.86 and the lowest at $87.31. Technically , crude faces a resistance at $88.25 and a support at $87.10. Brent is trading at $108.35 a barrel after rising 0.66%; natural gas is trading at $3.347 per 1,000 cubic feet after falling 0.33%; heating oil is trading around 2.974 after rising 0.63%; gasoline is trading at $2.670 after rising 0.60%.