Oil prices extend losses on US rating downgrade

August 03, 2023 (MLN): Oil prices fell on Thursday, extending yesterday's losses as the market weighed on the downgrade of the U.S. Long-Term Foreign-Currency Issuer Default Rating (IDR) over supply cuts.

Brent crude is currently trading at $82.30 per barrel, down by 1.22% on the day.

While West Texas Intermediate crude (WTI) is trading at $78.62 per barrel, down by 1.07% on the day.

Fitch Ratings downgraded the US’s long-term foreign-currency IDR to 'AA+' from 'AAA' on August 02.

As a result, oil prices witnessed a massive decline, Brent Crude and WTI both fell 2.70% and 2.94% respectively in yesterday’s trading session

Scott D. Sheffield, Pioneer CEO stated that oil prices are expected to reach $100.

"Since oil had a steady rise over the past month, it was ripe for a pullback. The oil market will remain tight over the short term, but prices could be still vulnerable for a deeper drop," said Edward Moya, an analyst at OANDA, as Reuters reported.

The supply situation was highlighted by a record 17m barrel drop in U.S. crude stockpiles last week as refiners stepped up runs and exports topped 5 million barrels per day (bpd), according to data from the Energy Information Administration on Wednesday.

The next market monitoring committee meeting of the Organization of the Petroleum Exporting Countries and allies, together called OPEC+, is to be held on August 04.

Government policies to boost the economy of China, the world’s second-biggest oil consumer, are also giving some support for prices and fuel demand, though details of support measures have been sparse so far.

The world's second-largest economy also reported on Thursday its services sector expanded at a quicker pace in June, offsetting disappointing manufacturing data earlier this week.

"China's further stimulus policy and a sharp draw in the U.S. inventory data may still be the strong fundamental reasons for a rebounding crude market," said Tina Teng, an analyst at CMC Markets.

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