Oil prices reversed course to trade lower on Friday after U.S. House of Representatives Republicans and President Joe Biden’s administration paused talks about raising the government’s debt ceiling, threatening a default that could cut energy demand.
Brent futures fell 26 cents, or 0.3%, to $75.62 a barrel by 12:33 p.m. ET 1633 GMT). West Texas Intermediate U.S. crude for July expiry eased 40 cents, or 0.6%, to $71.55.
The less active U.S. crude contract for May , due to expire on Monday, eased 46 cents, or 0.6%, to $71.4.
Brent and U.S. crude were set to notch their first weekly gains in a month.
Biden and House Republicans have little time to agree on a deal to raise the federal government’s $31.4 trillion borrowing limit or risk a catastrophic default. The Treasury Department has warned the government could be unable to pay all its bills by June 1.
A White House official said a deal remained possible.
Markets were also spooked by Federal Reserve Chair Jerome Powell’s comments that inflation was “far above” the Fed’s objective, adding no decisions were made yet on the next interest rate action.
“It doesn’t look they are going to get the debt deal done today.., the chances of a 25 basis point (rate hike) increase in the June meeting is rising by the day… There’s not a lot for the bulls to hang their hats on,” said Mizuho analyst Robert Yawger.
Following reports of the debt ceiling negotiations and Powell’s comments, U.S. stocks, Treasury yields and the dollar all moved lower.
Providing some support for markets, U.S. Treasury Secretary Janet Yellen reaffirmed the strength and soundness of the country’s banking system in a meeting with bank CEOs on Thursday, the Treasury Department said in a statement.
The potential for additional rate hikes increases concerns about demand weakness in the United States, said analysts from National Australia Bank.
The analysts said prices could rise as they expect China’s demand to continue increasing throughout 2023, which should offset the slowdown in OECD demand.
China’s oil refinery throughput in April rose 18.9% from a year earlier to the second-highest level on record, data showed this week.
Chinese refiners maintained high runs to meet recovering domestic fuel demand and build stockpiles ahead of the summer travel season.
Source: Reuters (Reporting by Laura Sanicola)