SINGAPORE (Reuters) - Brent crude steadied near $106 per barrel on Monday as investors remained on the sidelines a day ahead of U.S. presidential elections, fretting about the economic policies of the candidates and their possible impact on the world’s biggest oil consumer.
President Barack Obama and Republican challenger Mitt Romney are locked in a close race, as global markets worry about U.S. budget uncertainty, with looming spending cuts and tax hikes threatening to push the economy back into recession.
The uncertainty comes at a time when crude markets are already weighed down by worries of weak demand, especially in key consumers such as Japan, China and the euro zone, with a ramp-up in production by Saudi Arabia adding to pressure.
“Broadly speaking, we’ve seen a process over recent weeks now where the oil market is adjusting for the fact that there’s plenty of supply around for current demand levels,” said CMC markets analyst Ric Spooner.
He added that a key concern over the U.S. election was the possibility of a narrow Obama victory combined with a convincing Republican win in Congress. “(That) would make negotiations over fixing the fiscal cliff (difficult),” he said.
Front-month Brent futures rose 14 cents to $105.82 per barrel at 0248 GMT, while U.S. crude climbed 14 cents to $85 per barrel.
Crude prices fell more than 2 percent on Friday after the U.S. government allowed foreign tankers to bring fuel to the East Coast from other U.S. ports to tide over shortages caused by superstorm Sandy.
Although investors were preoccupied by demand worries from weak global economic activity and the outcome of a weekend meeting of G20 finance chiefs, the presidential elections on Tuesday remained in focus.
The outcome of Congress talks over the ‘fiscal cliff’ - a package of tax increases and spending cuts that will take effect in January if there is no long-term pact to cut the budget deficit - is already a major uncertainty for markets.
Last year’s bitter partisan fight in Congress over raising the debt ceiling, the legal amount the U.S. Treasury is allowed to borrow, resulted in the U.S. losing its coveted top-tier triple-A rating from Standard & Poor‘s.
That could push the world’s biggest economy into a deep recession and cut energy demand far more than expected.
Adding to concerns, two days after the U.S. elections, China’s ruling Communist party will being its once-in-a-decade power shift -- an unprecedented occasion of power changes in the world’s top two economies.
Demand worries persisted, despite data last week that pointed to a sustained improvement Asia, as analysts remained unconvinced about a recovery in U.S. and China, which are essential for a global turnaround.
Manufacturing in the euro zone shrunk for a 15 straight month, increasing their doubts about a global recovery. France, Spain and Italy and Spain saw a continuing trend of sharp decreases in fuel use, but Germany and Britain saw growth, statistics showed last week.