Oil Prices Jumpy on U.S. Debt Debate


NEW YORK (TheStreet) -- West Texas Intermediate light sweet crude oil prices were jumpy Thursday as the markets got caught between U.S. debt concerns, a bearish inventory report, and uplifting domestic economic news.

West Texas Intermediate light sweet crude oil for September delivery was rising 20 cents to $97.60 a barrel after falling 16 cents a barrel in early trading. WTI futures traded as a high as $98.01 and as low as $96.51 in the morning.

"WTI crude is trading very skittishly, closely awaiting news regarding the U.S. debt ceiling," said Summit Energy analyst Matt Smith.

Brent crude for September delivery was rising 74 cents to $118.17 a barrel and trading steadily in positive territory throughout the morning, as it was more insulated from the U .S. crude stockpile news released on Wednesday. This, amid support from year-long production disruptions in the North Sea Buzzard oilfield due to a defective cooling system and lost Libyan output due to the civil war.

Brent crude prices on Thursday were pricing in a premium connected to the build-up of tropical storm Don in the Gulf of Mexico, which was heading for the coast of Texas, the main U.S. oil producer and the location of over 25% of the country's refinery capacities.

"The tropical activity is more bullish for Brent than WTI -- given WTI it is priced at Cushing, OK -- as Brent is a better proxy for prices across the whole of the U.S. Hence it is pricing in more of a premium for the tropical storm," said Smith.

The spread between WTI and Brent remains strong Thursday as the markets expect a downgrade of U.S. credit ratings regardless of whether lawmakers raise the country's borrowing limit on time. Meanwhile, oil traders have been weighing a bigger-than-expected crude inventory build against a downtick of initial claims by 24,000 to 398,000 in the week ended July 23 and a rise in pending home sales for June by 2.4% to an index reading of 90.9.

U.S. lawmakers are meeting today to vote on the latest plan for raising the U.S. debt ceiling to avoid a debt default.

The House is expected to vote on a bill from House Speaker John Boehner. If Democrats reject the proposal, as many expect they will, lawmakers will have to go back to the drawing board. Thursday's vote was already delayed because the Congressional Budget Office had said that Boehner's plan would not cut as much in spending as Republicans had said.

WTI fell more than $2 Wednesday on the U.S. debt concerns, a stronger dollar and a strong inventory build. The Energy Department reported on Wednesday an unexpected increase in U.S. crude stocks, for the first time in nine weeks, of 2.3 million barrels. "It can be accounted for by higher crude imports and a drop in capacity utilization," Commerzbank analyst Carsten Fritsch said.

More than two million barrels of oil have been released from strategic reserves for the first time since the International Energy Agency 's announcement more than a month ago that it would release 60 million barrels of emergency oil reserves, according to Fritsch.

Natural gas futures for September delivery were falling 1.8% to $4.24 a million British thermal units on a bigger-than-expected storage build last week.

The Department of Energy reported Thursday that natural gas inventories increased 43 billion cubic feet for the week ended Friday, Jul. 22 over the previous week. A Platts survey of analysts suggested a 38 Bcf to 42 Bcf build.

Smith of Summit Energy said that while tropical storm Don is whirring in the Gulf of Mexico -- a major area of natural gas production -- and some non-essential workers are being evacuated as a precaution, "for now there looks to be very brief disruptions to production." Smith sees a 20% shut in of gas production for a day or two, citing Kinetic Analysis Corp.

Oil and gas stocks were trading in mixed territory. Marathon Oil ( MRO) was trading sideways at $31.51, BP ( BP) was up 0.4% to $45.10, Exxon ( XOM) was falling 1.4% to $82.13, Occidental Petroleum ( OXY) was falling 0.3% to $101.08, Chesapeake Energy ( CHK) was gaining 1.6% to $33.92, Gastar Exploration ( GST) was surging 21.3% to $4.73 and Encore Energy ( ENP) was advancing 1.4% to $21.85.

-- Written by Andrea Tse in New York.

>To contact the writer of this article, click here: Andrea Tse.

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