Oil prices fell on Tuesday as more weak US economic data fuelled concern about the economy even as Congress passed a US debt-cutting measure in time to avoid a default for the world's top oil consumer. Congress passed a deficit-cutting package that also raised the nation's borrowing limit, but ending the debt-ceiling row for the 2012 election cycle did not remove the possibility of a credit rating downgrade.
"The passing of the US debt-ceiling bill should already be priced into oil markets. I'm not expecting any major fireworks. Markets are more concerned about the recent trend of weaker economic data," said Tom Bentz, director at BNP Paribas Commodity Futures.
A stronger dollar index also helped pressure dollar-denominated oil prices, though the greenback also seesawed and an earlier slip had helped lift oil from an intraday dip. Brent crude's losses were limited by North Sea supply disruptions, Libya's crude oil exports lost to civil war and a fire at a refinery in Taiwan that also was supportive to gas oil and US heating oil futures.
ICE Brent crude for September fell 35 cents to settle at $116.46 a barrel, having traded from $115.53 to $118.40. US September crude fell $1.10 to settle at $93.79 a barrel, the weakest close since June 28, after swinging from $93.17 to $95.68, criss-crossing its 200-day moving average of $95.00. The trading volatility allowed Brent's premium to US crude to push to $22.98 a barrel intraday.
Oil prices felt pressure early on Tuesday from a report showing US consumer spending dropped in June for the first time in nearly two years and incomes barely rose. "The debt ceiling distraction may now be behind the markets, but the damage has been done," said John Kilduff, partner at Again Capital LLC in New York.
"We are witnessing a quickly deteriorating economic backdrop that will pressure all asset classes. Policymakers need to next implement measures that will foster growth." As oil companies continued to restart Gulf of Mexico operations halted last week by the now departed Tropical Storm Don, a new threat, Tropical Storm Emily, simmered over the Caribbean.
But despite the short production interruptions, US crude oil inventories were expected to have risen last week, as supplies from the Strategic Petroleum Reserve offset any storm-related losses, a Reuters analyst survey showed on Monday. Gasoline stockpiles were projected to be unchanged, while distillate stocks were expected to have increased. US retail gasoline demand fell sharply 3.1 percent in the week to July 29 from year-ago, while posting a 0.1 percent rise from the previous week, as price gains since the beginning of July weighed on consumption, MasterCard said.
Data on inventories from industry group the American Petroleum Institute (API) will be published on Tuesday, at 4:30 pm EDT (2030 GMT), followed by government statistics from the US Energy Information Administration on Wednesday.
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