Oil prices down as budget stalemate continues, Middle East concern

Oil prices retreated after surging on Thursday as the political standoff in the U.S. continued despite yesterdays optimism for a resolution. Lowered forecast for demand for OPEC oil in the fourth quarter and next year also weighed on prices. Hopes for an end to the budget and debt ceiling impasse and renewed geopolitical tension tension in North Africa and the Middle East however underpinned the market.

On the New York Mercantile Exchange, WTI crude for delivery in November fell by 0.45% to $102.55 per barrel at 7:18 GMT. Prices held in range between days high and low of $102.97 and $102.54 a barrel respectively. Light, sweet crude rose by 1.2% on Thursday after falling the most in a month in the previous day but extended its weekly decline to over 1% on Friday.

Meanwhile on the ICE, Brent futures for settlement in November traded at $111.45 a barrel at 7:17 GMT, down 0.37% on the day. The contract varied in a narrow range between $111.91 and $111.39 per barrel. The European benchmark added 2.45% on Thursday, the biggest daily advance since September 18, and is headed to its best weekly performance in six weeks, up 1.9% so far.

Oil prices rallied on Thursday after House Speaker John Boehner and other Republican leaders met with President Barack Obama to discuss a short-term solution of the debt ceiling deadlock, pushing back the deadline from October 17 to November 22 with no policy conditions attached. President Obama was reported to have rejected the plan, but Republican Paul Ryan told reporters he had neither accepted nor rejected the offer. Despite the lack of conclusion, the discussion and proposal were viewed by market players as a step forward and fanned optimism that the political standoff will be resolved soon. The debt limit vote could be held as early as today.

Ben Le Brun, a market analyst at OptionsXpress in Sydney, said for CNBC: “Prices have been coming down through the uncertainty, so were claiming higher ground. I think we can expect further upside for both Brent and WTI if they sort this out.”

According to a Bloomberg news survey, WTI is likely to advance next week as most investors see the U.S. political crisis resolved by the end of the week. Fourteen out of 33 participants, or 42%, wagered that prices will rise, while eleven analysts, or 33%, expected a decline. The remaining eight predicted no change.

Supply risk

Oil received a boost after Libyas Prime Minister Ali Zeidan was arrested on Thursday by a group called Libya Revolutionaries Operations Room and held at a Tripoli hotel. Although he was released several hours later, militia violence in the North African country, which holds the continents biggest crude reserves, continues to fan concern that the nations legitimate government could once again lose control over its oil production and exports.

Libyas output fell to less than a tenth of its capacity in the beginning of September after protesters closed down most of the nations oilfields and export terminals. Production was said to have recovered to around 700 000 barrels per day recently.

Ric Spooner, a chief market analyst at CMC Markets in Sydney, said for Bloomberg: “The situation in Libya has been resolved in the short term. But it’s a reminder that Libya is a very unstable place. Though production has recently been somewhat restored it remains under threat.”

Markets were also spooked yesterday following a Twitter post from the Israeli military that suggested it had bombed Syrian airports.

Meanwhile, OPEC trimmed the demand forecast for its oil in the fourth quarter and next year, saying that the groups production will remain higher in 2014 than global demand despite Iraq and Libyas reduced output. OPEC pumped out the least in September since October 2011 due to losses in Iraq. The 12 members averaged 30.05 million barrels last month after output from Iraq dropped by 370 000 barrels per day to 2.8 million as the Basrah terminal was idled for maintenance.