Oil prices fell on Friday as investors worried US politicians would fail to agree on a new debt ceiling and trigger a default that would hurt the economy and reduce fuel demand.
Brent futures were down 28 cents, or 0.8%, at $75.58 a barrel, while West Texas Intermediate (WTI) crude for July was down 25 cents, or 0.3%, to $71.69 a barrel.
The less active WTI crude oil contract for May, which expires on Monday, closed at $71.55, down 31 cents, or 0.4%.
Brent and WTI crude oil prices recorded their first weekly gains in a month, both benchmarks are up nearly 2%.
Oil gave up gains of up to a dollar after Republicans in the U.S. House of Representatives and President Joe Biden’s administration stalled talks on raising the federal government’s $31.4 trillion debt ceiling on Friday.
The Treasury Department warned that the government would not be able to pay all of its bills until June 1. Still, there are those who say a deal is possible.
Jerome Powell’s comments that inflation is “well above the Fed’s target” and that no decision has yet been made on the next interest rate action also spooked markets.
It doesn’t look like the debt settlement will be settled anytime soon. The possibility of a 25 basis point rate hike at the Fed’s June meeting is increasing day by day. The bulls don’t have much to do for now.
U.S. stocks, Treasury yields, and the dollar fell after reports of paused debt ceiling negotiations and Powell’s comments.
US Treasury Secretary Janet Yellen reaffirmed the strength and soundness of the country’s banking system, which provided some support to the markets, during a meeting with bank CEOs on Thursday, the Treasury Department said in a statement.
Baker Hughes Co said the number of US oil rigs, an indicator of future production, fell 11 this week to 575, the biggest weekly drop since September 2021.
The U.S. Commodity Futures Trading Commission (CFTC) said money managers cut their net long-term crude oil futures and options positions in the U.S. for the week of May 16.
Prices are likely to rise throughout 2023 due to high demand in China, although the possibility of additional rate hikes raises concerns about US demand weakness.
According to data released this week, China’s oil refinery output in April rose 18.9% from a year ago, reaching the second-highest level in history that confirms the demand recovery.
Chinese refineries continued their high production performance to meet the recovering domestic fuel demand and stock up before the summer travel season.