The price of oil jumped Wednesday as traders cheered a deal in Washington to avert the “fiscal cliff,” a series of tax increases and spending cuts that could have pushed the world’s biggest economy into recession.
The House of Representatives voted near midnight Tuesday night to send a bill averting the cliff to President Barack Obama after a frantic day of political brinkmanship on Capitol Hill.
In morning trading, benchmark West Texas Intermediate crude for February delivery rose $1.14 to US$92.96 a barrel on the New York Mercantile Exchange. Oil followed the stock market higher, where major indexes were up about two per cent.
Economists had warned that if Congress did not take action, the massive tax increases and spending cuts due to automatically start this year could have pushed the U.S. into recession. A spike in unemployment and less consumer spending would likely depress energy demand.
Some House Republicans at first opposed the bill, which drops middle-class tax increases and billions in spending cuts set to take effect over the next two months, while raising taxes on the wealthy. They called for more spending cuts but eventually agreed to a simple yes-or-no vote on the bill, which had already passed the Senate by a wide margin.
But U.S. budget problems are far from over and include a new deadline for spending cuts in two months. Oil analyst Phil Flynn says in the meantime, “ignorance is bliss and this deal should propel oil…near $96 a barrel.”
Brent crude, used to price various kinds of international oil, was up 96 cents at US$112.07 a barrel on the ICE Futures exchange in London.
In other energy futures trading on the Nymex, wholesale gasoline rose three cents to US$2.79 a U.S. gallon (3.79 litres), heating oil added a penny to US$3.04 a gallon and natural gas fell 15 cents to US$3.21 per 1,000 cubic feet.