Oil Trades Near One-Week High on Speculation U.S. Economy May Boost Demand

Oil traded near the highest price ina week in New York and is poised for the first weekly gain inthree amid signs of economic recovery in the U.S., the world sbiggest crude consumer.

Futures were little changed after climbing for a second dayyesterday. U.S. durable goods orders rose more than forecast inDecember, according to Commerce Department data, while a reportthis week showed gasoline demand increased the most in more thantwo months. Australia s crude production may have been cut by aquarter as Tropical Cyclone Iggy shut platforms. Brent oil spremium to New York-traded West Texas Intermediate widened.

 The data we ve seen out of the U.S. over the last fewmonths is indicating a recovery in the economy,  Michael McCarthy, a chief market strategist at CMC Markets Asia PacificPty in Sydney, said by telephone today.  The spread betweenBrent and West Texas has blown out again. That suggests thepotential for some supply disruption out of the Middle East isin the back of traders  minds.

Crude for March delivery was at $99.63 a barrel inelectronic trading on the New York Mercantile Exchange, down 7cents, at 3:29 p.m. Singapore time. Yesterday, the contractgained 30 cents to $99.70, the highest settlement since Jan. 19.Prices have climbed 1.2 percent so far this week and 16 percentin the past year.

Brent oil for March settlement on the London-based ICEFutures Europe exchange was at $110.68 a barrel, down 11 cents.The European benchmark contract was at a premium of $11.10 toWest Texas futures. The spread shrank to $9.90 on Jan. 18 andreached a record $27.88 on Oct. 14.
Technical Support

Crude in New York has technical support along its 50-daymoving average, around $99.28 a barrel today, according to datacompiled by Bloomberg. Futures slid to an intraday low yesterdayof $99.23. Buy orders tend to be clustered near chart-supportlevels.

 West Texas is in a key area between $99 and $102 so if wedo see it trade up through $102.50 in the next few sess! ions wec ould well get a bit of a gallop on,  McCarthy said.

U.S. bookings for durable goods, or products meant to lastat least three years, advanced 3 percent after rising 4.3percent the prior month, the biggest back-to-back gains inalmost a year, based on a Commerce Department report yesterdayin Washington. A median 2 percent increase was predicted by 78economists surveyed by Bloomberg News.

Fuel consumption rose 7.5 percent to 19.2 million barrels aday in the week ended Jan. 20, the largest gain since Nov. 4,the Energy Department said on Jan. 25.
Iran Sanctions

Oil has also risen this week amid concern European Unionsanctions on Iran will curb supplies. EU foreign ministersagreed on Jan. 23 to ban petroleum imports from the Persian Gulfnation from July 1 to pressure the country over its nuclearprogram. Iranian President Mahmoud Ahmadinejad said his countryis willing to revive talks on its nuclear plans and accusedWestern countries of dodging discussions, the state-run Farsnews agency reported yesterday.

Iran has threatened to close the Strait of Hormuz inretaliation against the embargo. The waterway is a transit routefor about a fifth of the world s crude, according to the U.S.Department of Energy.

More than 70 percent of investors in a quarterly BloombergGlobal Poll said an attack on Iran s nuclear facilities wouldcreate only a short-term disruption in crude markets. About athird of 1,209 global investors, traders and analysts surveyedfrom Jan. 23 to Jan. 24 said an attack could trigger an oilshock leading to a global recession.
Tropical Cyclone Iggy

Crude may rise next week on the EU embargo plan and afterthe Federal Reserve committed to keep interest rates near arecord low through 2014, according to a Bloomberg News survey.Fifteen of 32 analysts and traders, or 47 percent, forecast oilwill advance through Feb. 3. Ten respondents, or 31 percent,predicted prices will drop and seven estimated there will belittle change.

Tropical Cyclone Iggy! reduced Australian oil output thisweek by as much as 100,000 barrels a day, or about a quarter ofthe country s average production last fiscal year. The stormwill strengthen to Category 3 tomorrow, the third-strongest on afive-step scale, the Bureau of Meteorology said on its website.

Obama and Buffett Rule Make ¡®Good Tax Politics, Not Good Tax Policy,¡¯ Expert Says

President Barack Obama delivering the State of the Union address on Tuesday night. (Photo: AP)

A central focus of President Barack Obama’s State of the Union address Tuesday night was economic fairness, and requiring the wealthiest of Americans to pay more in taxes, but tax specialists and wealth managers say hiking taxes for the rich will do nothing to fix the tax code–which they say is a mess.
Obama’s proposal to cut $3.6 trillion from the deficit over the next decade through a measure called the Buffett rule, named for billionaire investor Warren Buffett, which increases taxes on wealthy Americans who earn $1 million or more per taxable year, is merely “good tax politics, not good tax policy,” says Christopher Bergin, president of Tax Analysts.
The fundamental problem with the tax code, Bergin says, is that “our tax system right now picks winners and losers.” The wages that average workers pay and are reported on their W-2s are taxed “differently” than the money Buffett and Mitt Romney, the current GOP presidential candidate, make, which is “not by working but by moving money around.” The way the law is written, Buffett and Romney “get a better tax rate than the rest of us.”
As Obama said during his speech on Tuesday, “Tax reform should follow the Buffett rule. If you make more than $1 million a year, you should not pay less than 30% in taxes.… Washington should stop subsidizing millionaires. In fact, if you’re earning a million dollars a year, you shouldn’t get special tax subsidies or deductions.” On the other hand, he said, “if you make under $250,000 a year, like 98% of American families, your taxes shouldn’t go up. You’re the ones struggling with rising costs and stagnant wages. You’re the ones who need relief.”
But “sticking it to the rich” will not fix the income tax code, “which is extremely problematic,” Bergin says. The tax system as it stands now “benefits the rich, and the poor–however you want to categorize them–lower income people do not pay federal income taxes. Some of them get refundable earned income tax credits for some of the payroll taxes they pay.” But it is the middle income folks–those generally earning $100,000 to $500,000 per year, Bergin says, that “really get hit; and are paying more of an effective [tax] rate than Romney.”
Obama also said he wants to let the Bush tax cuts expire. “When it comes to the deficit, we’ve already agreed to more than $2 trillion in cuts and savings. But we need to do more, and that means making choices,” Obama said. “Right now, we’re poised to spend nearly $1 trillion more on what was supposed to be a temporary tax break for the wealthiest 2% of Americans. Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households. Right now, Warren Buffett pays a lower tax rate than his secretary.”
Asked Obama: “Do we want to keep these tax cuts for the wealthiest Americans? Or do we want to keep our investments in everything else–like education and medical research; a strong military and care for our veterans? Because if we’re serious about paying down our debt, we can’t do both.”

Obama went on to say that America needs “to change our tax code so that people like me, and an awful lot of members of Congress, pay our fair share of taxes.”
But Bergin doubts Congress will make any headway in reforming the tax code this year. Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, and “his colleagues have to deal with things that are timed to blow up this year or have already blown up last year; there is no opportunity for tax reform this year.”
Lawmakers must grapple this year with the Alternative Minimum Tax, as the patch instituted last year has expired, as well as the estate tax. Bergin says he’s been hearing from wealth managers “who don’t know how to advise their clients” because the estate tax rules revert back to 2001 rates at the end of 2012.
Then there’s the payroll tax cut, which was extended for two-months before Congress’ holiday recess and that expires on Feb. 29. The Temporary Payroll Tax Cut Continuation Act of 2011 extends the two-percentage-point payroll tax cut for employees, continuing the reduction of the Social Security tax withholding rate from 6.2% to 4.2%.
Obama urged Congress during his speech to pass the payroll tax cut “without delay.” He said Congress’ “most immediate priority is stopping a tax hike on 160 million working Americans while the recovery is still fragile.”
Bergin says there’s a danger for Social Security if Congress continues to “extend” the payroll tax cut as opposed to a long-term solution. “If [Congress] keeps extending this payroll tax cut there’s a threat to Social Security that no one is talking about, of it not becoming a separate system but just another budget item” for Congress.