Rating agency Fitch downgraded the main credit rating of the United States, the world’s largest oil consumer, reflecting a high and rising government debt burden alongside an expected financial deterioration.
Oil prices were little changed after two days of slump, including Wednesday’s steep decline, as the US government’s downgrade on Thursday weighed on sentiment, but concerns about tightness in supply provided some support.
Brent crude futures were at $83.26 a barrel, up 6 cents or 0.1%, at 0422 GMT, while West Texas Intermediate crude rose 5 cents, or 0.1%, to $79.54 a barrel.
On Wednesday, both indicators were trading at their highest levels since April but closed down 2% after the downgrades. WTI prices rose around 16% in July, while Brent gained more than 14%.
Oil rose steadily over the past month, setting the stage for a pullback. While the oil market is thought that will remain tight in the short term, prices may still be vulnerable to a deeper decline.
Data released by the Energy Information Administration (EIA) on Wednesday highlighted a record 17 million barrels drop in U.S. crude stockpiles last week, signifying supply tightness, as refineries ramped up voyages and exports exceeded 5 million barrels per day.
The actual stock decline is significantly different from the 1.4 million-barrel drop that analysts had predicted. This marks global demand outpacing supply as major producers continue to make deep cuts.
The next market monitoring committee meeting of the Organization of the Petroleum Exporting Countries and its allies will be held on 4 August. At the meeting, Saudi Arabia is expected to extend its 1 million bpd voluntary cut for another month, including September, while OPEC+ is unlikely to change its current oil production policy.
Despite the broader downward trend, prices are supported by concerns about tighter supply as major producers’ production cuts are expected to continue at Friday’s meeting.
Government policies to stimulate the economy of China, the world’s second-largest oil consumer, are also giving prices and fuel demand some support, but the details of the support measures are not clear so far.
China, also the world’s second-largest economy, reported on Thursday that its services sector grew faster in June, offsetting disappointing manufacturing data earlier this week.
It is possible to say that China’s promising stimulus policies and the sharp decline in the US oil stock data are the current and strong main reasons for the recovery of the crude oil market.
