Oil Falls Amid Global Uncertainties, Surge In U.S. Gasoline Inventories

Crude oil extended its losses on Thursday as sentiment remains subdued after U.S. gasoline inventories increased the most in 11 years, while the global uncertainties, like the fiscal cliff, kept demand concerns in focus.

Despite China’s strong manufacturing data and comments of China’s new leadership indicating that they will keep their macroeconomic policies stable to support growth and domestic consumption, the outlook for oil demand remained subdued. Economic data showed yesterday a lower-than-expected increase in U.S. private-sector hiring and a sharp drop in the eurozone’s retail sales. This adds to data earlier this week showing the manufacturing activity in the world’s largest oil consumer shrank in November.

The weekly inventories report released yesterday by the EIA was another negative factor to the energy market. Gasoline inventories increased the most since September 2001 by 7.9 million barrels as demand dropped and refineries increased production. While the U.S. crude oil inventories fell last week 2.36 million barrels compared with a forecast decline of 500,000, distillate stocks which include diesel and heating oil rose by more than 3 million barrels from an expected gain of 850,000 barrels.

Meanwhile, in the Middle East, Western sanction on Iranian oil exports and remarks by President Barack Obama that a budget deal was possible within about a week if Republicans' compromise on taxes, prevented prices from falling further on Thursday. Yet Obama’s comments are sufficient to ensure a budget deal, as the Republicans continue to reject the call for a tax increase on the wealthiest. U.S. lawmakers now have about three weeks to avert the “fiscal cliff” that could push the economy into recession.

Adding to the downside pressures on oil prices was the dollar’s gains, which rose against a basket of goods as sentiment weakened damaging the appetite for risk, especially ahead of BoE’s and ECB’s rate decisions later in the day and Friday’s U.S. employment report. Crude oil is seen as of this writing trading around $87.70 with the highest at 87.88 and the lowest at $87.58. Brent is trading around $108.75 after falling 0.06%, while natural gas is trading around $3.682 per 1,000 cubic feet after falling 0.49%.

Technically, crude oil failed once again to break the strong resistance at $89.20 during yesterday’s session. This pushed it lower towards the $88.50 support at which it managed to break. Now it tests the next support at $87.60, which if breached it will head to $86.80.

While the war in Syria continues to be critical amid worries of a possible use of chemical weapons, clashes erupted Wednesday in Cairo between supporters of Egyptian President Mohamad Morsi and people protesting against November 22 nd decree that Morsi new powers.

While markets continue to balance risks of oil demand against concerns about the disruption of supplies, investors will also be eyeing the eurozone’s growth report, Germany’s factory orders and the U.S. jobless claims.