Oil prices shed 1% in Thursday morning trading over American debt and the prospects for a historic default, despite gains on Wednesday driven by demand optimism in the U.S. market.
Bloomberg’s take on this is that Wall Street is afraid of what it calculates as a potential $1-trillion aftershock for the economy if the debt ceiling is not resolved.
On Thursday at 10:38 a.m. EST, Brent crude was trading down 1% at $76.19, down 77 cents on the day, while WTI was down 0.85% at $72.21, down 62 cents on the day.
U.S. President Joe Biden is currently negotiating a debt ceiling with Republican Speaker Kevin McCarthy, and Democratic senators believe there is a good chance that the president will agree to strip non-defense related spending by tens of billions of dollars and make fossil-fuel extraction easier.
A group of Democratic senators are now pushing Biden to bypass McCarthy and raise the debt ceiling unilaterally, without any negotiations using the 14th Amendment, The Hill reports.
According to the U.S. Treasury, Washington could be out of cash by June 1st if the debt ceiling is not lifted soon.
Yesterday saw the Dow gain 400 points on comments from Biden that suggested debt ceiling negotiations would wrap up soon and an agreement would be reached. Biden’s comments also boosted oil prices yesterday.
Also driving oil prices down is weekly inventory data from the Energy Information Administration (EIA) released on Thursday, showing a slight build in crude oil stockpiles in the U.S.
While we saw a significant decline in U.S. gasoline inventories amid surging demand, which helped boosted oil prices by over $2 on Wednesday, by Thursday, when data was fully digested by the market, the 5-million-barrel build for the week to May 12 was weighing negatively in conjunction with debt ceiling fears.
By Tom Kool for Oilprice.com
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An economy like the United States’ based on rising debts and printing of trillions of dollars to offset growing fiscal deficit will always be source of great worry to the global economy and the global demand for oil.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy ExpertK