Oil hovers above $97 following big drop
Oil prices held steady above $97 a barrel Thursday a day after they tumbled over $2 following confirmation that the U.S. has released emergency crude reserves.
By early afternoon in Europe, benchmark oil for September delivery was up 14 cents to $97.54 a barrel in electronic trading on the New York Mercantile Exchange. Earlier in the session, it fell as low as $96.51. On Wednesday, crude lost $2.19 to settle at $97.40.
In London, Brent crude rose 84 cents to $118.27 per barrel on the ICE Futures exchange.
On Wednesday, oil prices took a pounding after the U.S. Energy Department's Energy Information Administration revealed that U.S. commercial oil supplies grew by 2.3 million barrels last week, roughly the amount the U.S. released from its Strategic Petroleum Reserve.
Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted a drop of 2.3 million barrels.
The International Energy Agency said last month it would release 60 million barrels — half from the U.S. — in a bid to lower prices and make up for the shut down of Libyan oil since civil conflict began the OPEC nation in February. The U.S. will eventually release 30 million barrels from the strategic reserve as part of that.
The EIA also said wholesale demand for gasoline over the last four weeks was 3.3 percent less than the same period last year.
"U.S. oil demand is clearly weakening," Barclays Capital said in a report. "The U.S. oil economy has hit a soft patch, with the indications for July being particularly downbeat."
Failure by U.S. leaders to agree to lift the government's debt limit also weighed on crude prices. While most analysts expect a last-minute deal will be struck, uncertainty ahead of the Aug. 2 deadline has begun to spook markets.
"We are now starting to see markets beginning to seize up in light of the dangerous game of 'chicken' being played by the politicians in Washington," said senior commodities analyst Edward Meir of MF Global in New York.
The Dow Jones industrial index dropped 1.6 percent Wednesday and most Asian stock markets fell Friday.
"Few believe that the crisis will continue without some resolution before August 2, but it is now starting to look increasingly likely that the U.S. credit rating will be lowered," energy analyst Cameron Hanover said in a report.
"Equities could drop even more urgently if this crisis is not resolved soon. It would be especially bad to let it fester over the weekend."
Supporting prices was Tropical Storm Don, which was moving across the Gulf of Mexico toward southeastern Texas, where it was expected to make landfall Friday.
"This could stop any further retreat in the price of crude for now," said analysts at Commerzbank in Frankfurt. "Texas is the main oil producer in the U.S., and is home to over a quarter of the country's refinery capacities."
In other Nymex trading in September contracts, heating oil gained 2.51 cents at $3.1195 a gallon and gasoline advanced 2.84 cents at $3.1115 a gallon. Natural gas futures fell 0.5 cent at $4.313 per 1,000 cubic feet.
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