Oil drops from four-month high amid U.S., European debt talks

Oil dropped from the highest level in four months in New York before European finance ministers meet today to discuss the region’s debt crisis and as U.S. lawmakers vote this week on budget measures.

West Texas Intermediate futures slid as much as 0.5%, declining for the first time in four days. House Republicans will use the planned Jan. 23 vote on a debt-ceiling increase to try to force Senate Democrats to outline their spending plans. Finance ministers in Brussels will assess Spain, Greece and Cyprus and debate how to enact policies they promised to subdue the region’s crisis.

“In Europe, we believe things are deteriorating rapidly,” said Guy Wolf, a strategist at London-based commodities broker Marex Spectron Group Ltd. “Everyone believes the crisis has been solved. Yet politicians haven’t done anything, we have just seen markets apply less pressure.”

WTI crude for February delivery, which expires tomorrow, fell as much as 51 cents to $95.05 a barrel in electronic trading on the New York Mercantile Exchange and was at $95.10 at 1:07 p.m. London time. The more active March contract was down 41 cents at $95.63. Front-month futures rose 7 cents on Jan. 18 to the highest close since Sept. 17.

The average volume of all contracts was 32% below the 100-day average. Floor trading will be closed today for Martin Luther King Jr. Day.

Relative Strength

Brent for March settlement on the London-based ICE Futures Europe exchange dropped as much as 48 cents, or 0.4%, to $111.41 a barrel. The average volume of all contracts traded was 28% below the 100-day average. The European benchmark was at a premium of $15.89 to WTI futures for the same month. The gap was $15.16 on Jan. 17, the narrowest since July 24.

WTI is falling as a technical indicator shows prices have climbed too quickly for further gains to be sustainable. The 14-day relative strength index was higher than 70 for a second day on Jan. 18, according to data compiled by Bloomberg. A reading above that level signals a market is overbought and will decline. The RSI is at 69 today.

Futures in New York may fall to $50 a barrel in the next two years as oil output rises in North America, Francisco Blanch, head of commodities research at Bank of America Merrill Lynch, said in a report dated yesterday.

The Treasury Department has said the U.S. will exceed its $16.4 trillion borrowing authority sometime from mid-February to early March. Congress faces two other fiscal deadlines in the next 90 days, and House Republicans plan to use those debates rather than the immediate one over the debt limit to push for federal spending cuts.

Since 1960, Congress has raised or revised the debt ceiling 79 times, including 49 times under Republican presidents, according to the Treasury Department.

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