Oil prices fell on Monday as the inability of the US Congress to reach agreement on raising the government debt limit kept investors wary of risky assets and concerned about the global economy. Low trading volumes boosted volatility and brokers and analysts expected some market participants to be sidelined awaiting the outcome of US efforts to avoid default.
Concerns about a US credit rating downgrade or even default kept markets worried about the global economy and energy demand, after a new bailout deal for Greece helped boost oil prices on Friday. Brent September crude fell 73 cents to settle at $117.94 a barrel, having traded from $116.92 to $118.45.
US September crude fell 67 cents to settle at $99.20 a barrel, recovering from an earlier low of $98.52. Brent crude total trading volumes were 50 percent below the 30-day average and US volume was 40 percent under with two hours of post-settlement trading remaining. Oil prices bounced off early lows, staying within sight of last week's highs, and some analysts maintained that chances of a US default remained remote and were unlikely to translate into a real economic crisis.
"The political circus over the US debt level will probably last until the last hours before August 2," Olivier Jakob of Petromatrix said in a note. "There are enough demand uncertainties to maintain speculators on the sideline of the oil trade," he concluded. A sharply divided US Congress pursued rival budget plans that appeared unlikely to win broad support as the clock ticks toward an August 2 deadline to raise the debt limit. Talks again collapsed in acrimony over the weekend.
"In sympathy with a variety of other markets, including equities, the petroleum markets tested the downside in early Monday trade, with traders increasingly nervous over the lack of a deal to raise the US debt ceiling before an August 2 deadline," Tim Evans, energy analyst for Citi Futures Perspective, said in a note. US stocks dipped on the sparring in Washington over the US debt ceiling and gold prices hit a record high reacting to the political stalemate.
The eurozone's debt problems also kept concerns about economic growth in focus. Moody's cut Greece's credit rating further into junk territory and said it was almost certain to slap a default tag on its debt as a result of a new European Union rescue package. Euro zone leaders and banks agreed last week that the private sector would shoulder part of the burden of a rescue deal for Greece.
The euro recovered to move higher against the dollar, also in volatile trading, as investors debated the effectiveness of the Greek bailout plan. Both the euro and the dollar were under pressure earlier because of the lack of detail on the plan for Greece and as a deal on the US debt ceiling remained elusive. The dollar fell to a record low against the Swiss franc and a four-month trough versus the yen. A weaker dollar, along with shut-in production in war-torn Libya and reduced output in the North Sea, helped limit oil price losses, according to traders and analysts.