Oil prices fell below $97 a barrel Friday as U.S. leaders failed to agree to lift the government debt limit just days from a deadline, leaving investors to consider worst-case scenarios if a default occurs.
By early afternoon in Europe, benchmark oil for September delivery was down 78 cents to $96.66 a barrel in electronic trading on the New York Mercantile Exchange. Crude rose 4 cents to settle at $97.44 on Thursday.
In London, Brent crude fell 39 cents to $116.97 per barrel on the ICE Futures exchange.
Investors are closely watching negotiations among U.S. lawmakers ahead of Aug. 2, when the government will run out of money to pay its obligations unless its $14.3 trillion debt limit is raised.
Most analysts say a U.S. debt default is still very unlikely, but if it happened would devastate the economy. Credit Suisse estimated Thursday that a default would likely trigger a 5 percent contraction of U.S. gross domestic product.
Crude has traded near $97 for the last few days as investors wait for an outcome of the debt limit talks.
"Crude prices are generally in a holding pattern ahead of further guidance regarding the debt ceiling agreement or lack thereof," energy consultant Ritterbusch and Associates said. "A difficult trading environment still lies ahead until the U.S. debt situation acquires some clarity."
For commodity analyst Edward Meir of MF Global, there had not yet been a "decisive move" either up or down in commodities early Friday.
"However, we suspect that the overall tone will get progressively 'sellerish' ... and pick up even downward speed if the standoff continues into Monday," Meir said.
Oil prices were supported by the effects of Tropical Storm Don in the Gulf of Mexico, which led to the temporary closure of 11 offshore oil rigs. The storm is expected to make landfall Friday in southeastern Texas.
About 6.8 percent of normal Gulf oil production — or nearly 95,000 barrels — was cut off, along with 2.8 percent of normal natural gas output after personnel evacuations, the U.S. Bureau of Ocean Energy Management, Regulation and Enforcement said.
"Assuming that production is not impaired for any length of time, we envisage prices subsequently coming under pressure," said a report from Commerzbank in Frankfurt. "There is, after all, no shortage of oil at present."
Investors will also be eyeing U.S. GDP growth for the second quarter which is scheduled to be announced later Friday.
Some analysts expect that once the U.S. debt issue is settled, investors will focus on strong crude demand in developing countries, particularly China, and push oil prices higher by the end of the year.
"Hard though it may be to see through the currently negative headlines, there is the potential for a positive economic outcome, particularly for oil," J.P. Morgan said in a report. "The removal of policy uncertainty offers a constructive sign for the fourth quarter."
In other Nymex trading in September contracts, heating oil fell 0.85 cent to $3.1059 a gallon while gasoline slipped 0.66 cent to $3.0572 a gallon. Natural gas futures dropped 5.6 cents to $4.188 per 1,000 cubic feet.
Alex Kennedy in Singapore contributed to this report.
It seems that the Obama administration has brought months of negotiations with automakers on new fleet-wide MPG targets to an amicable close. The new CAFE, or corporate average fuel economy, standard to be announced today requires automakers’ entire fleet average 54.5 miles per gallon by 2025.
It’s slightly less than the administration’s original target of 56.2 miles per gallon, which received a whole mess of criticism from both lawmakers and the auto producers themselves. Automakers protested because a major factor in increasing fuel economy is building lighter cars, which requires the use of expensive materials that won’t necessarily get cheaper over time like technology tends to. Automakers are thus worried that, in order to keep prices acceptable to consumers, they’ll be struggling along with razor-thin margins.
Of course, there are other ways to cut costs, and thatâ€™s why lawmakers complained. Legislators from states with lots of auto production decried the proposed standard because of its possibility to lead to layoffs. The United Auto Workers union was also quite vocal that it was worried about the higher standard affecting the work force.
However, following the decision to lower the target slightly, everyone involved seems at least outwardly at peace, with General Motors, Ford, Chrysler, Toyota and Honda all signing off on the plan. CAFE standards already are set at 35.5 mpg by 2016, but that’s still a far cry from 54.5 mpg by 2025. The thing to remember is the CAFE standards include the automakers’ entire consumer fleets, so for every electric car claiming absurd mpg numbers, there’s a big honking truck to balance out the average, although heavy duty trucks, that generally only have commercial purposes, are excluded. With studies showing that passenger vehicles use about 44 percent of the nation’s oil and account for 20 percent of its carbon emissions, the new standards have potential for a lot of impact.
What does it all mean? Well, the administration argues that consumers will pay less at the pump, while automakers say they’ll spend more at the dealership, but while both seem plausible, neither is guaranteed. The most likely changes consumers will see will be a shift towards smaller, lighter cars with an increased array of hybrid, electric, forced induction and diesel engine options.
FRANKFURT (AFP) – Metro, the world's third biggest retailer, has cut its 2011 growth forecast, a spokesman said Friday as economic activity slows down in many parts of Europe.
Metro now expects sales to increase by zero to four percent, compared with a previous forecast of more than four percent, the spokesman said, citing remarks made by finance director Olaf Koch to analysts.
Shares in the retail group fell by 1.14 percent to 38.21 euros in midday trading on the Frankfurt stock exchange, while the DAX index was 1.05 percent lower overall.
Stock in the company has been in positive territory earlier in the day owing to strong German retail sales figures for the month of June.
More than half of Metro's sales are made outside its home country however, and many countries are now grappling with debt crisis and austerity plans drawn up to resolve them.
Among the eurozone countries where Metro has extensive operations are Greece, Italy and Spain.