Oil Prices Rise on Upbeat China Data, Syria Violence

Crude-oil futures rose on Friday, setting up for a weekly gain as they drew support from signs of strength in the Chinese economy and as ongoing violence in Syria fed concerns over oil supplies from the Middle East.

The move on Friday brought week-to-date gains for oil to 0.5%, with a notable portion of that advance made Wednesday, when crude futures jumped 1.1% after the U.S. Federal Reserve announced that it will undertake more asset buying.

“Talk of Chinese stimulus in the aftermath of the [U.S. Federal Reserve decision on monetary policy] perhaps means that the only thing holding back the entire commodity complex is the fiscal cliff,” said Phil Flynn, senior market analyst at the Price Futures Group, in a morning note.

In Syria, violence continued as Russia moved on Friday to clarify comments from an official a day earlier that suggested the Syrian government may be defeated by the opposition.

Reports that the U.S. might be raising its involvement in Syria “could put another geopolitical-risk premium back into the [oil] market,” said Flynn.

Friday’s advance for oil prices also came as a preliminary version of HSBC’s manufacturing Purchasing Managers’ Index hit a 14-month high.

Hongbin Qu, HSBC’s chief economist for China, said the improvement in the latest survey results confirmed that an ongoing recovery in the country was “gaining momentum, mainly driven by domestic demand conditions.”

Data from the U.S. Friday was encouraging, but at least one analyst expects slow economic growth and rising supplies will soon pressure prices.

Data covering November showed a slightly bigger-than-expected decline in the consumer price index and a rebound in industrial production.

“Improving China PMI economic data and a post-Hurricane Sandy recovery in U.S. Industrial production have temporary reversed crude’s price decline,” said Alan Herbst, a principal at Utilis Advisory Group in New York.

“But in the end, an anemic U.S. economy and growing domestic crude-oil production will win the day” and push West Texas Intermediate crude prices below $80 in the first quarter of 2013, he said.

U.S. Consumer Prices Decline in November

U.S. consumers paid less for goods and services in November, mainly because of the falling cost of gas

The consumer price index dropped a seasonally adjusted 0.3% last month, the Labor Department said Friday. Economists surveyed by MarketWatch had expected a 0.2% decline.

Excluding food and energy, core consumer prices edged up 0.1% in November. The core number is closely followed by investors and the Federal Reserve as it is seen to be a better predictor of future inflation.

The falling cost of fuel gave consumers some spare cash to spend last month on other goods and services. Retail sales rose 0.8% in November, excluding gas-station purchases, after falling in October, according to government data issued Thursday.

“People had a little more to spend in November and if the retail sales numbers are any indicator, they put it to good use this holiday shopping season,” said Joel Naroff of Naroff Economic Advisors.

A low rate of inflation also allows the Fed to continue its policy of buying government and mortgage-related debt in an effort to drive down interest rates for the purchase of homes, cars and other consumer goods. The aim of the Fed is to boost economic growth and slash the nation’s high unemployment rate.

In a separate report Friday, the Federal Reserve said industrial production rose 1.1% in November, but the bank revised the decline in October down to 0.7% from 0.4%.

In November, energy prices fell 4.1% and gasoline accounted for most of the decline. The gas index sank 7.4%, marking its biggest drop since December 2008.

For consumers, that translated into about a 3.5% decline in the price at the pump in November, according to data compiled by the AAA motor club.

Electricity prices rose for the fourth consecutive month, however. Energy prices are now just 0.3% higher compared to 12 months ago, a big reversal from earlier in the year.

Food prices, on the other hand, have been moving in the opposition direction. The food index rose 0.2% in November to nudge the year-over-year increase up to 1.8% on an unadjusted basis.

Prices rose the fastest for dairy and soft drinks, but the cost of fruits, vegetables, cereal and baked goods also increased.

Wealthy Americans Prepare for Higher Taxes

Whatever happens with the "fiscal cliff," wealthy Americans could be paying their last respects to generous tax breaks that let them pass millions of dollars to heirs and other recipients tax-free.

The exemptions, which are set to expire at year's end, allow individuals to pass on as much as $5.12 million in cash, property or other assets without paying any transfer taxes. Couples can give away more than $10 million.

The current exemptions apply to the tax on cumulative lifetime gifts, which is paid by the donor, and to the estate tax. Also covered: a separate tax on assets that people give away to grandchildren and other heirs who are more than one generation below the giver.

If Congress can't reach agreement on a package of tax increases and spending cuts before the New Year, automatic increases kick in that would limit those exemptions to $1 million in assets and increase the tax rate for assets that exceed the exemption to 55% from 35%.

Even if the increases aren't triggered automatically, some observers believe that the current tax breaks won't survive negotiations as there is increasing sentiment that the wealthiest Americans should pay more in taxes.

Accountants and lawyers have been advising affluent clients for months now to consider changing their estate plans to make use of the exemptions while they still can.

Ronald Weiner, chairman of Perelson Weiner LLP, a New York City accounting firm that focuses on high-net-worth individuals, followed the advice he gave many of his clients.

At the beginning of the year, Mr. Weiner and his wife transferred a number of assets to his children, including a second home that they placed in trust.

"It's a virtual certainty that taxes are going to go up for the affluent," Mr. Weiner said.

Republicans and some Democrats want to eliminate the estate tax altogether.

But President Barack Obama has proposed raising the top estate and gift-transfer tax rates to 45%, dropping the gift-tax exemption to $1 million and lowering both the estate tax and generation-skipping transfer-tax exemptions to $3.5 million.

"If you can afford to give something away and your estate is above $3.5 million, you have look very hard at it," said David Scott Sloan, a partner at law firm Holland & Knight LLP and chairman of the firm's private wealth services practice.

For example, Mr. Sloan has been working with one couple who have a net worth of about $40 million to transfer almost one-fourth of their assets to their children.

The couple, whom Mr. Sloan described as "self-made," had paid income and capital-gains taxes on their wealth and wanted to leave as much as possible to their descendants. Their current estate plan leaves all assets to the children after the death of the surviving spouse.

Instead, by giving the children the maximum amount now allowed under the gift exemption—$10.24 million for a couple—the pair will pay no transfer taxes on the gift, and their estate won't have to pay tax on those assets, Mr. Sloan said.

Advisers warn that changing an estate plan is a major decision that can take a considerable emotional toll and may take months to complete.

Still, Georgiana Slade, a partner who heads the trusts and estates group at Milbank Tweed Hadley & McCloy LLP, said new clients continue to ask for help setting up trusts and charitable foundations to take advantage of the tax breaks.

"I've been doing this 27 years now, and without question, since Obama was re-elected, this is the busiest I have ever been," Ms. Slade said. "I effectively told my family I'd see them on Dec. 31, at 11:59 p.m."