Oil Prices Drop Under Growing U.S. Debt Worries

Reuters

Oil prices edged lower Monday in choppy trading as the inability of the U.S. Congress to reach agreement on raising the government debt limit kept investors wary of risky assets and concerned about the global economy.

Low trading volumes boosted volatility and brokers and analysts expected some market participants to be sidelined awaiting the outcome of U.S. efforts to avoid default.

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Concerns about a U.S. credit rating downgrade or even default made markets wary again about the global economy and energy demand, after a new bailout deal for Greece helped boost oil prices on Friday.

Brent September crude fell 76 cents to $117.91 a barrel by 11:50 a.m. (1550 GMT), having traded from $116.92 to $118.45.

U.S. September crude fell 60 cents to $99.27 a barrel, after falling earlier to $98.52.

Both U.S. and Brent total crude futures trading volumes were around 200,000 lots traded approaching the noon hour in New York, with both more than 60 percent below their 30 day averages.

Oil prices bounced off Monday's early lows, still in sight of last week's highs, and some analysts maintained that worries about a U.S. default remained remote and were unlikely to translate into a real economic crisis.

``The political circus over the U.S. debt level will probably last until the last hours before Aug. 2nd,'' Olivier Jakob of Petromatrix said in a note.

``There are enough demand uncertainties to maintain speculators on the sideline of the oil trade,'' he concluded.

A sharply divided U.S. Congress pursued rival budget plans that appeared unlikely to win broad support as the clock ticks toward an Aug. 2 deadline to raise the debt limit. Talks again collapsed in acrimony over the weekend.

The euro zone's debt problems also kept concerns about economic growth in focus. Moody's cut Greece's credit rating further into junk territory and said it was almost certain to slap a default tag on its debt as a result of a new European Union rescue package.]

Euro zone leaders and banks agreed last week that the private sector would shoulder part of the burden of a rescue deal that offers Greece more cash and easier loan terms to keep it afloat and avoid further contagion.

(Additional reporting by Gene Ramos in New York, Jessica Donati in London and Florence Tan in Singapore; Editing by David Gregorio)

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