Brent Under Pressure From U.S. Fiscal Cliff
Brent crude oil settled around $107 on Thursday morning, trading at $107.48 The commodity recovered a bit after a massive slide on Wednesday following Barack Obama's re-election. With a Democrat in the White House and a Republican majority in the US House of Representatives many are worried about the time sensitive ‘fiscal cliff' decision.
Similar to 2011's debt ceiling catastrophe, Republicans and Democrats will need to work together to come to a speedy agreement about the nation's deficit. The ‘fiscal cliff' is a bundle of tax increases and spending cuts that total nearly $600 billion dollars. The package will kick in on January 1 if the government doesn't come to another agreement before that date. Many economists predict the ‘fiscal cliff' could send the number one oil consumer into a deep recession.
With the American ‘fiscal cliff' looming, demand outlook for Brent has appeared quite weak. On top of the uncertainty in the US, Europe is also quite unstable, adding to investor concern. With an upcoming European Central Bank meeting to discuss interest rates, Reuters reported that Mario Draghi believed the eurozone will remain weak throughout the fourth term, even as he hinted at intervening in struggling sovereign markets.
In Greece, a vote passed to implement another round of harsh austerity measures which unlocked its next installment of bailout money. For the moment, the country seems to be getting back on track; however with a new round of cuts in an already strained economy, social unrest and political upheaval remain a very real threat.
As the fourth quarter winds down and 2013 draws nearer, many are predicting that the eurozone and the US will be the biggest factors weighing on Brent prices. The impending ‘fiscal cliff' and a complete breakdown in Greece could mean 2013 will see much lower demand for oil amid a global economic slowdown.
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