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Crude falls amid US debt default concerns
Meanwhile, a Tropical Storm Don in the Gulf of Mexico led to a shutting down of 11 offshore oil rigs temporarily.
Oil prices fell below $97 a barrel Friday as investors were left with no choice but to consider worst-case scenarios given that there was no unanimity amongst U.S. lawmakers to lift the government debt limit.
Crude for September delivery dipped by 78 cents to $96.66 a barrel in the electronic trading on the New York Mercantile Exchange.
Likewise in London, Brent crude fell 39 cents to $116.97 per barrel on the ICE Futures exchange.
Onus on US government
The D-day is Aug. 2 before which the U.S. government’s $14.3 trillion debt limit must be raised to prevent it from defaulting on its payment obligations.
The government does not have sufficient cash to honor its obligations and any default on its part would have a detrimental impact on the economy.
“If the U.S. doesn’t increase the debt ceiling then the outlook for the economy becomes more subdued and that would weigh on oil.” -- Eliane Tanner, analyst at Bank Sarasin & Cie AG in Zurich
“Crude prices are generally in a holding pattern ahead of further guidance regarding the debt ceiling agreement or lack thereof,” energy consultant Ritterbusch and Associates were quoted as saying in Bloomberg.
“If the U.S. doesn’t increase the debt ceiling then the outlook for the economy becomes more subdued and that would weigh on oil,” said Eliane Tanner, an analyst at Bank Sarasin & Cie AG in Zurich..
“But market fundamentals are quite tight. We still don’t have the supply problems in the Middle East resolved yet and demand is to remain pretty robust. We expect sideways trading in a $110 to $120 range for the next few months,” added Tanner.
No shortage of supply
Meanwhile, a Tropical Storm Don in the Gulf of Mexico led to a shutting down of 11 offshore oil rigs temporarily.
Close to 95,000 barrels, or 6.8 percent of normal Gulf oil production, were affected due to the storm which is expected to make landfall Friday in southeastern Texas.
At present there is no shortage of oil and if the production in the Gulf is impaired only for a short period of times, as is expected, it will not lead to any increase in price from the supply side.