Brent Hangs on 11th Hour Fiscal Cliff Decision
Brent crude oil traded above $110 on Monday morning as investors waited to hear about a fiscal cliff deal in the U.S. The commodity traded at $110.39 just hours before the US was set to fall over the fiscal cliff.
U.S. lawmakers have been negotiating all weekend to come to an agreement about the package of spending cuts and tax hikes set to kick in on January 1st. Earlier in the month, investors were expecting a deal to be struck as both Democrats and Republicans in Washington seemed positive about coming to an agreement. However, talks turned sour with Republicans and Democrats failing to agree about tax increases.
Just before Christmas, Speaker of the House John Boehner failed to pass his proposal, dubbed "Plan B" among his peers in the US House of Representatives. This left the negotiating up to President Obama, who returned early from his Hawaiian holiday just after Christmas to work on a new proposal.
Reuters reported that although Democrats and republicans remained at odds on Sunday, analysts are optimistic about a breakthrough deal before the end of the day on Monday. The outcome, whether there is a deal or not, will have a big impact on the oil markets as it will determine the fate of the world's number one oil consumer.
The fiscal cliff is the main driver for Brent prices at the moment, but other factors, like geopolitical tension in the Middle East have continued to underpin prices. On Friday, Iranian naval forces began six days of drills in the Strait of Hormuz, one of the major oil and gas shipping routes. The drills are a stark reminder of Iran's threats to close the waterway should it's nuclear sites be threatened by military action from Israel or the US.
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