Oil prices tumbled in early Asian trade on Thursday as traders cautiously watched for signs of progress in talks to raise the US debt ceiling, after rising nearly 3% on optimism over US fuel demand in the previous session.
Brent crude futures dipped 20 cents, 0.3%, to $76.76 a barrel as of 0228 GMT. West Texas Intermediate (WTI) crude also dropped 20 cents to $72.63 a barrel.
A sharp drop in US gasoline inventories as demand hit the highest levels since 2021 and optimism over negotiations over the US debt ceiling helped crude benchmarks rise more than $2 on Wednesday.
The United States underscored the federal government’s determination to reach an agreement soon to raise the $31.4 trillion debt ceiling and avoid a catastrophic economic default.
Investors are waiting for more evidence of a deal in the near future. Crude oil needs clear signs that the US economy will avoid economic disaster or that China’s recovery is gaining momentum.
The increasing possibility of the US Federal Reserve increasing interest rates continues to exert pressure on prices.
In addition to the strong April economic data in the US, the increased optimism about the debt ceiling negotiations and the healthier regional banking stocks overnight strengthen the market’s expectations for a new increase.
After months of disagreement, Biden and McCarthy agreed to negotiate directly Tuesday on raising the debt ceiling and avoiding a catastrophic economic default. A debt agreement needs to be reached and passed by both chambers of Congress, which could be as soon as June 1.