* Senator Reid says U.S. appears headed over 'fiscal cliff'
* Trading volume continues to be thinned by holidays
* U.S. economic data mixed, consumer sentiment slips
* Coming up: EIA oil stocks data, 11 a.m. EST Friday
(Adds API data paragraphs 23-28)
By Robert Gibbons
NEW YORK, Dec 27 Oil prices eased in choppy
trading on Thursday, buffeted by unresolved U.S. budget talks
and the possibility that looming tax increases and spending cuts
could push the top oil-consuming economy into recession.
Crude futures turned higher and seesawed in post-settlement
trading as U.S. equities cut losses on news that the U.S. House
of Representatives will hold a work session on Sunday in an
effort to get a budget deal.
Oil and U.S. equities prices had previously come under
pressure from comments by Senate Majority Leader Harry Reid
criticizing Republicans in Congress for refusing to go along
with any tax increases as part of a U.S. "fiscal cliff" remedy.
"It looks like that is where we're headed," Reid, a
Democrat, said of the likelihood of the U.S. economy going over
the fiscal cliff, a term used to describe the tax increases and
spending cuts that could start in January.
Brent and U.S. crude remained on track to post their third
consecutive weekly gains.
While Brent closed in on a full-year increase of around 3
percent, U.S. crude was on track to post a 2012 decline of
nearly 8 percent as accelerated domestic crude oil production
and tepid demand kept prices in check.
Brent February crude fell 27 cents to settle at
$110.80 a barrel, having reached $111.33. Brent fell to $110.10
in the session, encountering support above the 200-day moving
average of $110.01.
U.S. February crude dipped 11 cents to settle at
$90.87 a barrel.
U.S. crude dropped to $90.05 intraday before recovering to
settle back above the 100-day moving average of $90.66.
Thursday's session peak of $91.44 was the highest price for
front-month crude since Oct. 19.
Total Brent and U.S. crude trading volumes were more than 35
percent below their 30-day averages as the holidays kept
U.S. January heating oil and RBOB gasoline
futures settled higher, also after choppy trading,
as the contracts approach expiration on Monday.
Brokers said few investors wished to make large bets on the
direction of oil prices until the U.S. budget talks were
resolved or during a holiday period characterized by low trading
"We continue to find it difficult to have a directional
position in a low-volume environment in front of the fiscal
cliff uncertainty," said Olivier Jacob, an energy market
consultant at Petromatrix in Zug, Switzerland.
In a report, Bank of America-Merrill Lynch analysts said of
a possible U.S. budget deal: "While markets have vacillated
between optimism and pessimism over the prospects for a
compromise, we expect a deal only at the last minute, with lots
of decisions delayed into the New Year and austerity of roughly
2 percent of GDP."
Investors reacted to mixed economic data from the United
States on Thursday.
U.S. consumer confidence fell more than expected in
December, dropping to a four-month low, as the fiscal
uncertainty pushed back against recent optimism about the
Other data showed the number of Americans filing new jobless
benefit claims fell last week to nearly the lowest level in
4-1/2 years, while new home sales last month hit their highest
since April 2010.
Oil rose in early trading as Japanese stocks hit an 18-month
high after the country's new prime minister said beating
deflation and weakening the yen were his top priorities.
Japan's government will pursue bold monetary policy,
flexible fiscal policy and a growth strategy to encourage
private investment, Prime Minister Shinzo Abe said.
Concerns about potential supply disruptions in the Middle
East remained supportive to oil prices and were reinforced after
United Arab Emirates security forces arrested a cell of UAE and
Saudi Arabian citizens that the UAE said was planning attacks in
both countries and other states.
U.S. OIL INVENTORIES
Also supporting prices were expectations that U.S. crude
stockpiles decreased last week as refiners used up existing
inventories for year-end tax advantages.
U.S. crude inventories fell 1.2 million barrels in the week
to Dec. 21, the American Petroleum Institute said in a report
released late on Thursday, less than the expected drop.
Gasoline stocks rose 2.4 million barrels and distillate
stockpiles rose 2.9 million barrels, the API said.
Crude stocks were expected to have fallen by 1.9 million
barrels last week, a Reuters poll of analysts showed.
Gasoline stocks were expected to be up only 500,000 barrels,
with distillate inventories seen down 900,000 barrels.
The U.S. Energy Information Administration's oil inventory
report is due on Friday at 11 a.m. EST (1600 GMT). The inventory
reports were delayed because of Tuesday's Christmas holiday.
(Additional reporting by Christopher Johnson in London and
Ramya Venugopal in Singapore; Editing by Marguerita Choy, John
Wallace, Dale Hudson and Bob Burgdorfer)