Brent drops toward $110 on U.S. fiscal worries

Luke Pachymuthu
Reuters Middle East

* U.S. lawmakers struggle to find compromise on fiscal

budget talks

* U.S. economy improves in Q3; consumer spending stays weak

* Coming Up: CFTC commitment of traders data; 1930 GMT

SINGAPORE, Nov 30 (Reuters) - Brent crude slipped towards

$110 per barrel on Friday as critical U.S. budget talks to avert

a looming fiscal disaster appeared to have stalled, denting the

outlook for oil demand from the world's biggest consumer.

U.S. fiscal worries have cut into oil's gains this month

that were spurred by tensions in the Middle East. Brent had

risen 2.4 percent in the first half of November but is now on

track to close the month up 1.6 percent, snapping two straight

monthly losses.

"We are trading day to day based on the running drama over

the fiscal cliff, and the market doesn't look very optimistic at

the moment," said Carl Larry, a derivatives broker with Atlas

Commodities in Houston, referring to U.S. talks to avert $600

billion worth of tax hikes and spending cuts, or the so-called

"fiscal cliff" due to start in the new year that threatens to

push the economy back to recession.

"This deal needs to get done, but will it get done before

Christmas, today that seems to be in doubt, but the U.S. can't

afford to let this roll past the deadline."

Top U.S. Republican lawmaker John Boehner, speaker of the

House of Representatives, said on Thursday fiscal cliff talks

had made no substantive progress. This comment came just a day

after President Barack Obama said he hoped to reach a deal

before Christmas.

Brent crude dropped 35 cents to $110.41 a barrel by

0225 GMT. Earlier in the session, prices hit $110.57, topping

its 50-day moving average price of $110.56. A breach of moving

average levels can encourage buying, boosting prices further.

U.S. crude was down 38 cents to $87.69 a barrel.

The United States is a critical component to lifting the

outlook for the global economy in 2013, as Europe continues to

struggle with the debt crisis and China, the world's second

largest consumer of oil, heads for a soft landing in 2012.

U.S. economic growth in July-Sept was revised up to 2.7

percent on Thursday from an initial reading of 2.0 percent as

restocking by businesses provided a big boost, but consumer and

business spending - important gauges of the economy - were

revised lower.

"If you look at it on the surface, it would seem that the

economy is doing better, but underlying there are still issues,

and I don't see the U.S. economy being able to lift outlook on

demand next year," said Jim Ritterbusch, president of

Chicago-based Ritterbusch & Associates.

"We are looking at more downward revisions for global oil

demand in 2013, and the market is generally oversupplied."

A Reuters survey suggests the 12-member Organization of the

Petroleum Exporting Countries is still producing over a million

barrels per day (bpd) more than its target of 30 million bpd.

OPEC crude output in November averaged 31.06 million bpd,

down from 31.15 million bpd in October, the survey found. OPEC

is likely to keep its current output target of 30 million bpd

when its members meet next month, OPEC delegates told Reuters.


However, support for oil prices continues to come from the

political crisis in Egypt and Western sanctions on Iran.

An Islamist-led assembly was expected to finalise a new

constitution on Friday aimed at transforming Egypt and paving

the way for an end to a crisis which erupted when President

Mohamed Mursi gave himself sweeping new powers last week.

On Thursday, an alliance of Egyptian opposition groups

pledged to keep up protests against Mursi and said broader civil

disobedience was possible to fight what it described as an

attempt to "kidnap Egypt from its people."

The U.S. Senate is set to consider a broader set of economic

sanctions on Iran's energy, port, shipping and shipbuilding

sectors, as lawmakers look for new ways to pressure Tehran to

stop efforts to enrich uranium to levels that could be used in


The sanctions come as the United Nations' nuclear chief said

his agency has made no progress in its year-long push to

investigate whether Iran has worked on developing an atomic


Israel and its allies insist Iran is trying to build a

nuclear bomb while the Tehran says its program is for civilian


(Editing by Himani Sarkar)

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