Oil declined for the first time in five days on concern a failure to reach a deal on raising the US debt limit may cause the nation to default, threatening the economy of the world's biggest crude consumer.
Futures dropped as much as 1.1 per cent after US House of Representatives' Speaker John Boehner told Republicans there was no agreement on a plan for increasing the ceiling before a default threatened for August 2.
Standard and Poor's has warned there is a 50 per cent chance it will lower the US government's AAA credit rating by one or more levels. Greece's long-term foreign currency debt was cut three steps by Moody's Investors Service yesterday.
"Uncertainty about the US budget is translating into weaker commodity prices, including oil, today," said Christopher Bellew, senior broker at Jefferies Bache Ltd. in London. "But the supply-demand fundamentals in oil suggest Brent crude will remain bound in a range of $115 (Dh422.4) to $120."
Article continues below
Crude for September delivery fell as much as $1.13 to $98.74 a barrel in electronic trading on the New York Mercantile Exchange and was at $99.23 at 10:32am London time. The contract advanced 2.7 per cent last week, its fourth weekly gain.
Brent for September settlement dropped as much as $1.05, or 0.9 per cent, to $117.62 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract traded at a premium of $18.64 a barrel to US futures, compared with a record close of $22.63 on July 14.
Republicans prepared to force action on a shorter-term extension of the limit than US President Barack Obama has requested, defying a veto threat. Obama would veto a measure that doesn't extend the limit into 2013, White House Chief of Staff Bill Daley said in an interview on NBC's Meet the Press on Sunday.
"For the financial investors, if the debt issue is not really resolved, they may cut a portion of their risky assets," said Tetsu Emori, a commodity fund manager at Astmax Co. in Tokyo. "Crude oil is a kind of risky asset, so people may cut a part of their portfolio."
Any debt-limit increase must pass both the Republican-controlled House and the Democratic-run Senate and be signed by Obama. Democrats have resisted cuts to social programmes.