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Global oil prices drop at prospect of US defaulting on debt

oil rig


by Joseph Earnest October 14, 2013


Newscast Media CHICAGO—Global oil prices fell on Monday as top crude consumer the United States faces the prospect of a potentially devastating sovereign debt default.

New York's main contract, West Texas Intermediate (WTI) for delivery in November dropped 16 cents to $101.86 per barrel.

Brent North Sea crude for November slid 91 cents to stand at $110.37 a barrel in London late afternoon trade.

"Crude oil prices retreated as the US budget issues in Washington weighed on market sentiment and raised persistent concerns about a slowdown in the US oil demand," said Sucden brokers analyst Myrto Sokou.

Investors are keeping a close eye on Washington as Democrats and Republicans try to work out a deal to reopen the federal government and raise the country's borrowing limit before a October 17 deadline.

"The main focus remains on the US debt ceiling and government shutdown as the markets are hoping for a resolution to the issue before Thursday's deadline," added Sokou.

With the US expected to run out of cash to pay its bills on Thursday, President Barack Obama has urged Republicans to agree to a debt ceiling hike.

Failure to raise the spending limit would mean a default that could ravage demand in the world's top oil consuming nationand tip the global economy back into recession, analysts said.

Japan and the world's top energy user Chinawhich between them hold more than $2.4 trillion of US debt, have urged the US to get its house in order and avert a default.

"With only three days to go before the US tips over the soft deadline of its debt ceiling, progress on Capitol Hill seemed to come to a standstill," Desmond Chua, market analyst at CMC Markets in Singapore, said in a note.

"The ball is now thrown back into the Senate's court, with market watchers hoping that less conservative Republicans in the Senate will support a longer debt limit extension with no conditions attached."

Crude futures had retreated on Friday after an International Energy Agency report highlighted the surge in production from North America and some other countries.

Analysts pointed to a report by the IEA, which represents energy-consuming countries, that said third-quarter growth in output from nations outside the Organization of the Petroleum Exporting Countries (OPEC) rose by 1.7 million barrels a day compared with last year.

This was "the steepest annual growth for any quarter in over 10-years," the IEA said.

Besides the United States and Canada, the additional supply comes from Kazakhstan and South Sudan.

The IEA warned that the rise in non-OPEC oil would not necessarily mean lower prices because of instability in some leading OPEC countries, including Iraq and Libya. 

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Source: Al Manar TV News






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