NEW YORK: US oil prices were higher yesterday as traders covered short positions in the event that US politicians reach a deal to fund the government after being unable to come to terms on such funding in the last two weeks, traders said.
The US Senate leader said he hopes to have a fiscal plan ready to show President Obama yesterday after weekend talks showed some signs of progress.
“We’re trading back and forth on the changing perceptions of what is happening in D C at this point,” said Gene McGillian, oil analyst with Tradition Energy in Stamford, Connecticut. “You saw some short covering on the latest news that the Senate will have a plan. Nobody wants to be exposed if something should change.”
Brent crude futures were trading 44 cents lower at $110.84 a barrel at 12.49pm EDT (1649 GMT), after trading as low as $109.87. US oil was trading 39 cents higher at $102.41 a barrel, after trading down to $101.06.
The budget fight that led to a partial shutdown of the government was expected to damage the global economy and dent oil demand in the US, the world’s largest oil consumer. International Monetary Fund chief Christine Lagarde warned of “massive disruption” to the global economy if the US debt ceiling, which will be reached on Thursday, was not lifted.
“Not only is the US standoff doing harm to the US economy but the knock on effect is it will do harm to the global economy,” said Stephen Schork, editor of the Schork Report in Villanova, Pennsylvania.
The spread between global benchmark Brent and US oil benchmark West Texas Intermediate has widened in the past two weeks as the US budget crisis has weighed more heavily on its domestic contract than on Brent. Brent’s premium over West Texas Intermediate was last trading at $8.48 per barrel, after widening to its most since early June in the previous session at $10.01.
Brent oil prices were also lower as geopolitical tensions with Iran are expected to ease. Talks about Iran’s nuclear program are due to start in Geneva on Tuesday and will be the first since the election of President Hassan Rouhani, who has tried to improve ties with the West to pave the way for an end to sanctions, which have cut Iraian oil exports by more than one million barrels per day.