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Oil drops as much as $2 as "fiscal cliff" approaches

In afternoon trading benchmark crude for February delivery fell $1.62 to $88.51 per barrel in New York. It was as low as $87.96 at one point.

The Associated Press

12/21/2012

NEW YORK — Oil prices fell as much as $2 a barrel Friday as doubts grew about whether political leaders in Washington could reach a deal on the budget before a package of tax hikes and spending cuts automatically kicks in with the new year.

In afternoon trading benchmark crude for February delivery fell $1.62 to $88.51 per barrel in New York. It was as low as $87.96 at one point.

Brent crude, used to price international varieties of oil, fell $1.22 to $108.98 per barrel in London.

If Republicans and Democrats don't work out a compromise in the next 10 days, the U.S. could go over the so-called "fiscal cliff," a reference to hundreds of billions of dollars in tax increases and government spending cuts that take effect if a budget deal is not reached. Many economists fear that would eventually push the U.S. back into recession, a situation that would likely mean less energy demand.

Late Thursday House Republicans abruptly put off a vote on an alternative plan offered by House Speaker John Boehner that would prevent scheduled tax increases from taking effect on Jan. 1 on all income under $1 million. President Barack Obama wants the cutoff point to be $400,000.

On Friday morning, both men signaled talks are still open.

In other energy futures trading on the New York Mercantile Exchange:

— Natural gas gained 2 cents to $3.48 per 1,000 cubic feet.

— Heating oil fell 3 cents to $3.02 a gallon.

— Wholesale gasoline fell 3 cents to $2.72 a gallon.


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