Oil Prices Down as US Debt Ceiling Crisis Continues

By Adedapo Adesanya

Oil prices fell on Friday as investors worried that the United States government would fail to agree on a new debt ceiling.

Brent futures lost 28 cents or 0.8 per cent to close at $75.58 a barrel, and the US West Texas Intermediate crude fell 25 cents or 0.3 per cent to $71.69 a barrel.

Brent and US crude prices nevertheless notched their first weekly gains in a month, with both benchmarks rising about 2 per cent.

Oil gave up gains of as much as a dollar after Republicans in the US House of Representatives and President Joe Biden’s administration on Friday paused talks on raising the federal government’s $31.4 trillion debt ceiling.

Congress and the White House are racing against a June 1 time frame that the Treasury Department says could mark the moment it cannot meet some of its debt payments if the debt ceiling is not raised.

This would likely trigger a first-ever US default.

Federal Reserve Chair Jerome Powell’s comments that inflation was “far above” the Fed’s objective also swayed the market.

Although he added that no decisions had been made yet on the next interest rate action, analysts bet that the chance of a 25 basis point rate increase in the June 13-14 meeting is rising by the day.

Support came as the US Treasury Secretary Janet Yellen reaffirmed the strength and soundness of the country’s banking system in a meeting with bank chief executives on Thursday.

Oil prices also got some support from the fact that driving season is around the corner, with demand expected to pick up in accordance with the usual seasonal variation.

Some additional support was also provided by the Department of Energy when it announced it planned to buy 3 million barrels of oil for the strategic petroleum reserve.

However, the US leading economic indicators suggested the economy is gathering pace, which reignited fears of more rate hikes as it pushed the US Dollar to the highest in two months.

A stronger Dollar makes crude expensive for holders and buyers in other currencies.

US oil rig count, an indicator of future production, fell by 11 to 575 this week, the biggest weekly drop since September 2021, energy services firm Baker Hughes Co. said.