NEW YORK (Pakistan Point News / Sputnik - 03rd May, 2023) Oil settled at five-week lows in US trading as fears of a possible debt default by the Biden administration added to weak industrial data in the world's largest economy.
New York-traded West Texas Intermediate, or WTI, the benchmark for US crude, settled down $4, or 5.3%, at $71.66 per barrel. London-traded Brent, the global crude benchmark, finished down $3.99, or 5%, at $75.32. Tuesday's closing was the lowest since March 24 for both WTI and Brent.
Since this week began, WTI has lost 6%, adding to the 1.2% decline from last week and another 6% drop from the prior week. Brent was nursing a 5% drop on the week after last week's 2.6% decline and the prior week's 5% slump.
Tuesday's drop came a day after Treasury Secretary Janet Yellen said the US government could run out of money within a month as Biden-aligned Democrat lawmakers and their Republican rivals wrangled over how much to raise the Congressional debt limit by to pay down America's obligations.
The cost of insuring against a US default hit fresh highs after Yellen said on Monday that the Biden administration might not meet all payment obligations by "early June," prompting the president to summon four top congressional leaders to the White House next week.
Adding to the concerns over a debt default were the latest readings on US factory orders and durable goods that came in lower than expected. Job openings for March, meanwhile, fell as layoffs and discharges rose, the Labor Department reported.
A month after a major production cut announced by the OPEC+ oil producing alliance that got a barrel up by about $10 or more, crude prices have shifted direction completely, heading into deeper red territory, analysts observed.
"OPEC+ will surely hate how oil prices have turned again in just a month but that's what the reality is," said John Kilduff, partner at New York energy hedge fund Again Capital. "The economy's always a greater concern, especially if there's a potential debt default at hand."
OPEC+, which groups the 13-member Saudi-led Organization of the Petroleum Exporting Countries with 10 independent oil producers, including Russia, said it will cut a further 1.7 million barrels from its daily output, adding to an earlier pledge from November to take off 2.0M barrels per day.
In terms of absolute pricing, WTI had gone from a high of $83.53 in days after the OPEC+ production maneuver to Monday's session low of $71.44. Brent went from a peak of $86.90 to the latest session low of $75.09.
WTI could break $70 support next though a rebound is also likely due to oversold conditions, Sunil Kumar Dixit, chief technical strategist at SKCharting.com, said.
One relief for not just the oil market but risk investors in general might come from signs that the Federal Reserve will pause on its more than one-year of rate hikes after another quarter point increase on Wednesday that will leave US rates at a peak of 5.25% versus inflation trending at 4.0-5.0%.
