Singapore: Oil was heading on Friday for its first rise in three months as investors focused on forecasts of improved demand despite jitters over an elusive debt deal in the United States to avert a default and a credit downgrade.
Prices also gained support from positive macroeconomic data from the United States on Wednesday and about 7% of output being shut in by producers in the Gulf of Mexico as Tropical Storm Don approaches.
Brent crude for September rose 6 cents to $117.42 a barrel by 6:21pm, after closing down 7 cents at $117.36 a barrel on Thursday. US crude for September was down 24 cents at $97.20 a barrel, but was on track to rise 1.8% on the month, its first increase in three months.
A deal to avert an imminent and unprecedented debt default by the world’s largest economy was nowhere in sight as the Republicans and Democrats continued to push their own proposals.
“The population across the globe is getting fed up with the sabre-rattling,” said Ben Le Brun, analyst at CMC Markets. “It’s just a lot of uncertainty. Hopefully we’ll see something during the weekend that will resolve this issue.”
The head of the IMF and top officials at US banks have warned that a failure to raise the debt limit by the 2 August deadline could trigger a payments crunch that would shake the global financial system, cause the dollar to decline and tip the United States back into recession.
The US Treasury will unveil a plan as soon as Friday evening showing how the government will function and pay its bills if it looks like Congress will not raise the debt ceiling in a timely manner.
Political wrangling over the debt issue overshadowed Thursday’s data showing an improvement in US unemployment claims and home sales that briefly lifted markets.
Americans claiming new unemployment benefits last week dropped below the 400,000 level for the first time since early April, a hopeful sign for the anemic US economy while pending sales of existing homes rose unexpectedly in June.
“The biggest concern in the United States was the jobs market,” Le Brun said, adding that the positive data could bring more good news on the US macroeconomic front.
“We do have a good backlog of economic data. I expect a significant rally across a number of asset classes once the debt issue is put to bed,” he said.
The storm situation in the US Gulf of Mexico also supported oil prices.
Producers reduced oil and natural gas output on Thursday as Tropical Storm Don churned northwest toward the Texas coast, where it could make landfall by the weekend.
Although Don had cut a small 7% of US Gulf of Mexico crude output and 3% of natgas output according to government data by midday Thursday, analysts said the storm’s relative weakness and position in the Gulf of Mexico made it unlikely to cause prolonged production outages or energy infrastructure damage.
Investors are bullish on oil prices as they expect demand to rise later in the second half of the year, tightening supply.
Opec is expected to pump oil output in July to its highest in almost three years, mainly on extra oil from Saudi Arabia and Angola, a Reuters survey found.
Shell chief executive Peter Voser told Reuters Insider Television that oil prices remained strong because the market believed Opec spare capacity was eroding fast and had probably fallen below 2 million barrels per day.
Oil could also find further support from China as the central bank looks poised to end a streak of lifting bank reserve requirements every month since November since a slowdown in foreign capital inflows gives it room to relieve very tight money market conditions.
“Such a move could help maintain growth in both the economy and consumers’ disposable income and should be favourable for oil from the demand side,” MF Global analysts wrote in a note.