Oil slips as debt talks pause, Fed warns of high inflation

Oil prices fell on Friday, as investors worried that U.S. politicians will fail to agree on a new debt ceiling and trigger a default that would hurt the economy and reduce fuel demand.

Brent futures settled at $75.58 a barrel, while U.S. West Texas Intermediate dropped to $71.55. Brent and U.S. crude prices nevertheless notched their first weekly gains in a month, with the both benchmarks rising about 2%.

Oil gave up gains of as much as a dollar after Republicans in the U.S. House of Representatives and President Joe Biden’s administration on Friday paused talks on raising the federal government’s $31.4 trillion debt ceiling.

The Treasury Department has warned the government could be unable to pay all its bills by June 1.

Markets were also spooked by Federal Reserve Chair Jerome Powell’s comments that inflation was “far above” the Fed’s objective, adding no decisions had been made yet on the next interest rate action.

Providing some support for markets, U.S. Treasury Secretary Janet Yellen reaffirmed the strength and soundness of the country’s banking system in a meeting with bank CEOs on Thursday, the Treasury Department said in a statement. Meanwhile, U.S. oil rig count, fell by 11 to 575 this week.

Asian LNG prices slip to 2-year low on tepid demand

Asian spot LNG prices slipped to their lowest level in two years on weak demand and high inventories, while European LNG prices also fell below the $10 mark amid healthy stock build and limited need for additional supply.

The average LNG price for July delivery into northeast Asia was down 6.6% from the previous week at $9.80 per mmBtu, the lowest since May 2021, industry sources estimated.

Prices continue to linger sub $10 as general demand remains low, opening interest from some Chinese industrial buyers and Japanese utilities who have taken cargoes while favourable pricing exists. South Asian buyers continued to dominate spot tenders; however, the direction of spot prices remains largely dependent on Chinese demand, which has the greatest potential to absorb a global glut of LNG. In Europe, analysts said that the economic driver to sell the noncontracted LNG to Europe is diminishing due to lower gas demand and Europe’s high inventories that are 65% full which will not be a problem in the near term.

However, it could form a risk for the longer term if demand starts to pick up due to economic rebound after a few months of contraction, or due to extremely hot summer or cold winter.