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Oil Market Update (December 27, 2012)

Global oil prices trended lower on Christmas eve trading on Monday, with investors becoming increasingly concerned over the slow progress of negotiations aimed at averting a potential budget crisis in the US.

By early afternoon on Monday, West Texas Intermediate crude for February delivery was down 15 cents, at $88.51 a barrel, in trading on the New York Mercantile Exchange.

Brent crude fell 38 cents, hitting $108.59 a barrel on the ICE Futures exchange in London.

A report from London-based Sucden Financial Research notes, "[w]ith politicians out on recess, sovereign credit markets closed and a general lack of vigor in seasonal markets, there's not much to chew on today with crude oil prices edging lower in decidedly thin volume."

Meanwhile, Jason Hughes, head of premium client management for IG Markets Singapore, stated that political bickering over a deal to avert the fiscal cliff weighed on markets during a “relatively quiet session.”

“We've still got concerns over where we stand in the fiscal cliff… that remains a concern that keeps traders cautious,” he told Agence France-Presse.

In company news, a trio of junior oil and gas companies announced that they have agreed to combine to form a mid-sized Canadian producer that will focus on light crude in Alberta. Pace Oil & Gas (TSX:PCE), AvenEx Energy (TSX:AVF) and Charger Energy (TSXV:CHX) confirmed that they will offer new shares in a combined operation known as Spyglass Resources. The deal is expected to close in February and the new corporation will produce about 18,000 barrels of oil equivalent a day.

In a press release, the companies noted that the transaction values Pace shares at C$4.32 each, AvenEx shares at C$3.32 each and Charger shares at C$0.60 each.

Chevron (NYSE:CVX) agreed to purchase a 50-percent operating interest in the proposed Kitimat liquefied natural gas project in Western Canada, buying out Encana (TSX:ECA) and EOG Resources (NYSE:EOG). Terms of the deal have not yet been disclosed.

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