SINGAPORE, Oct 16: Brent futures edged above $110 a barrel on Wednesday as the U.S. Senate inched towards a deal to raise the nation’s borrowing authority and provide temporary government funding, easing concerns about weaker demand for oil.
Lawmakers said a deal to extend the government’s borrowing authority to until Feb. 7 was close, helping the world’s biggest economy tide over the immediate crisis.
But without a long-term solution the same issues will again start grabbing headlines a few months later.
‘There’s no doubt there will be a deal, but that’s just kicking the can down the road a bit,’ said Ben Le Brun, a market analyst at OptionsXpress in Sydney. ‘This issue is still a concern for markets as it will start playing out again in a few months time.’
Brent crude gained 6 cents to $110.02 a barrel by 0436 GMT, after ending $1.14 lower in the previous session. U.S. oil fell 3 cents to $101.18, after settling down $1.20.
If Congress fails to reach a deal by Thursday, checks would likely go out on time for a short while for everyone from bondholders to workers who are owed unemployment benefits. But analysts warn that a default on government obligations could quickly follow, potentially causing the U.S. Financial sector to freeze up and threatening the global economy.
Fitch Ratings has already warned it could cut the sovereign credit rating of the United States from AAA.
Oil prices will stay around the current range until an announcement on a debt deal, Le Brun said.
After that, oil and other markets could be very volatile for the next few weeks because of a huge backlog of data such as employment numbers that have been held up because of the shutdown of the U.S. Government.
Oil investors are also awaiting the outcome of a meeting between world powers and Iran over Tehran’s disputed nuclear programme.
The West wants Tehran to back up its newly conciliatory language with concrete actions by scaling back its nuclear programme and allaying their suspicions it is seeking the capability to make atomic bombs.
Brent is expected to fall to $108.03 per barrel, as it may revisit the Oct. 1 low of $106.81 over the next few trading sessions, while a bearish target at $98.15 has been established for U.S. Oil, according to Reuters technical analyst Wang Tao.
(AGENCIES)
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