Brent drops below $112 as US budget talks loom
Brent crude dropped below $112 a barrel on Thursday as the prospects of more budget battles in the United States and rising oil supply weighed on prices, although upbeat economic data from China limited losses.
President Barack Obama and congressional Republicans face even bigger budget wrangling in the next two months after a hard-fought deal halted a round of automatic fiscal tightening that threatened to push the world's largest economy into recession.
"After the initial excitement, reality sets in," said Victor Shum, oil consultant at IHS Purvin & Gertz. "There will be other negotiations and the deal is a compromise."
Brent crude fell 52 cents to $111.95 a barrel by 0802 GMT after rising more than 1 percent on Wednesday to settle at the highest since October.
U.S. crude for February delivery was down 50 cents to $92.62 after closing at its highest since September. "If one focuses on the oil fundamentals, pricing at the current level appears overbought," Shum said, pointing to the fragile global economy and the growth in oil production from non-OPEC countries.
"In 2013, OPEC may have to limit supply in order to accommodate a rise in non-PEC oil production growth." Analysts expect oil prices to drop in 2013 as supply outweighs demand. U.S. crude production has hit a 19-year high while Russia pumped the most oil in the world last year, ahead of Saudi Arabia.
But losses in oil prices were checked by data showing China's services sector expanded in December, fueling hopes that the world's second
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