Crude oil lower; stronger dollar and debt ceiling uncertainty weigh
Investing.com -- Oil prices fell Thursday, handing back some of the week’s strong gains as U.S. debt ceiling uncertainty and a stronger dollar weighed on the crude market.
By 04:35 ET (08:35 GMT), U.S. crude futures traded 1% lower at $73.58 a barrel, while the Brent contract fell 0.9% to $77.68 a barrel.
Fears of a U.S. debt default have grown after rating agency Fitch raised the possibility of a downgrade to the U.S.’s prized “AAA” rating, placing it on credit watch negative, citing the uncertainty surrounding the negotiations to lift the country’s $31.4 trillion debt ceiling.
"Fitch still expects a resolution to the debt limit before the X-date," the credit agency said in a report.
"However, we believe risks have risen that the debt limit will not be raised or suspended before the X-date and consequently that the government could begin to miss payments on some of its obligations."
Such a move would have a disastrous impact on global activity, and thus the demand for crude, and has resulted in the safe-haven dollar climbing to a two-month high.
A stronger dollar means the commodities denominated in the U.S. currency, like oil, become more expensive for foreign buyers.
Also weighing was the news that Germany, Europe's largest economy, fell into recession in the winter months, as its economy contracted in the first quarter of 2023 compared with the previous three months.
The crude market had posted three consecutive days of gains at the start of this week, boosted by expectations of tighter U.S. supplies as the travel-heavy summer season approaches.
These expectations were boosted by an unexpected, hefty fall in U.S. crude oil inventories last week.
Data from the Energy Information Administration, released Wednesday, showed that crude inventories fell by 12.5 million barrels, while analysts had expected an 800,000-barrel rise. Gasoline inventories also dropped by 2.1 million barrels, while distillate stockpiles fell by 600,000 barrels.
The market had also been helped by comments from Saudi Arabian Energy Minister Prince Abdulaziz bin Salman that short sellers should "watch out" ahead of next month’s meeting of the Organization of Petroleum Exporting Countries and allies.
This raised expectations that Saudi Arabia, the de facto leader of the OPEC+ cartel, would seek another production cut in order to boost crude prices.
However, this view took a hit Thursday after Russian Deputy Prime Minister Alexander Novak said he expected OPEC+ to stand pat at its meeting in Vienna on June 4, a month after the cartel announced a surprise production cut.
“I don't think that there will be any new steps, because just a month ago certain decisions were made regarding the voluntary reduction of oil production by some countries due to the fact that we saw the slow pace of global economic recovery," Novak said, according to the state-owned news agency RIA.
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.
Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb
Drop an image here or