By Adedapo Adesanya
Crude oil depreciated to a one-week low on Thursday as a political standoff over the debt ceiling in the United States stoked recession jitters in the world’s biggest oil consumer.
Brent crude futures fell by $1.43 or 1.9 per cent to $74.98 a barrel during the session as the US West Texas Intermediate (WTI) Crude futures dropped $1.69 or 2.3 per cent to settle at $70.87 per barrel.
US Treasury Secretary Janet Yellen urged Congress to raise the $31.4 trillion federal debt limit and avert an unprecedented default that would trigger a global economic downturn.
She warned that a default would threaten the gains that the country has made over the past few years in its pandemic recovery, adding that it would spark a global downturn.
“It would also risk undermining U.S. global economic leadership and raise questions about our ability to defend our national security interests,” she told lawmakers.
This is after President Joe Biden on Wednesday said failure by Congress to act before the Treasury runs out of money to pay the government’s bills, something that could happen as early as June 1, risked throwing the US economy into a recession.
Pressure also came on oil yesterday from the strengthening of the US Dollar strengthened. A stronger greenback makes the commodity more expensive in other countries.
This provided the case for the Federal Reserve to halt interest rate hikes but did not prompt expectations of year-end rate cuts.
Higher interest rates can weigh on oil demand by boosting borrowing costs and pressuring economic growth.
Recent banking issues that could prompt a credit crunch across much of the oil industry also weighed on the market.
California-based bank PacWest Bancorp’s latest woes sparked another worry in the regional banking sector. This happened as investors remained concerned over the health of the sector following the collapse of three banks in March.
The market overlooked the Organisation of the Petroleum Exporting Countries (OPEC) global oil demand forecast for 2023, which projected demand in China, the world’s biggest oil importer, would increase.
OPEC projected Chinese oil demand would rise by 800,000 barrels per day, up from its 760,000 barrels per day forecast last month.
OPEC, however, said that the increase in Chinese demand could be offset by economic risks elsewhere, including the US debt ceiling battle.
On the supply front, Iraq has sent an official request to Turkey to restart oil exports through a pipeline running from the semi-autonomous Kurdistan Region in northern Iraq to the Turkish port of Ceyhan, which could add 450,000 barrels per day to global crude flows.
