Brent, the benchmark for two thirds of the world’s oil, settled 0.37 per cent lower at $75.58 per barrel at the close of trading on Friday, while West Texas Intermediate, the gauge that tracks US crude, was down 0.43 per cent at $71.55 per barrel.
"Crude prices were having a great week as the US economic outlook dramatically improved as lawmakers seem likely to reach a deal on the debt ceiling," said Ed Moya, senior market analyst at Oanda. "Debt ceiling optimism quickly disappeared on Friday and that sent oil prices sharply lower. The news wasn’t all negative for crude prices as Fed Chair (Jerome) Powell paved the way for a June hold."
On Wednesday, US President Joe Biden said he was confident about the prospects of reaching a budget agreement with senior Republican legislators to avert a default on the country's debt for the first time in its history.
He has met House Speaker Kevin McCarthy and other congressional leaders for talks on the debt ceiling over the past two weeks to try to ensure the US can continue to meet its financial obligations. However, Mr McCarthy sent mixed messages by saying an agreement in principle may be reached as soon as this weekend, but adding on Friday that bipartisan talks in Washington are on a “pause.”
The US is weeks away from a potential default on its debt, an outcome that would adversely hit American consumers and send shock waves across the entire global financial system.
The debt ceiling, or debt limit, is the maximum amount of debt the Treasury Department can borrow to fulfil its financial commitments.
Continued wildfires in Alberta, Canada's top energy producing province are also supporting oil prices.
“In the near term, substantial wildfires are continuing to disrupt Canadian oil production with as much as 240,000 barrels per day offline,” Emirates NBD said.
Oil prices are down more than 10 per cent this year despite China, one of the top consumers of crude in the world, reopening its economy in January. Concerns about global economic growth amid the tightening of the monetary policy by the US Federal Reserve is putting downward pressure on oil prices.
In April, the International Monetary Fund lowered its global economic growth estimate for this year by 0.1 percentage points to 2.8 per cent, from what it previously projected in January as a result of monetary tightening, geo political tensions and high inflation.
Despite global economic headwinds, the International Energy Agency on Tuesday raised its 2023 global oil demand estimates again and said the current pessimism in the market is in “stark contrast” to the agency’s expectations of a tighter market in the second half of the year.
The IEA now expects global crude demand to rise by 2.2 million barrels per day in 2023, an increase of 200,000 bpd from its April forecast.
Earlier this month, Opec also stuck to its 2023 growth projection for oil demand, although the oil producers’ group has slightly lowered its forecast for regions other than China.
“Oil remains weighed down by persistent demand-side fears,” Han Tan, chief market analyst at Exinity told The National. “Oil’s upside is likely to be capped until markets can put to bed the angst surrounding the looming recession, especially if the Chinese economy can offer evidence of a broader and more resilient recovery.”
Earlier this week, Opec secretary general Haitham Al Ghais, while speaking at the sixth meeting of the Opec-China Energy Dialogue in Beijing, said the group attaches importance to its dialogue partnership with China, the world's second-largest economy, and aims to strengthen it.
In March, global oil demand climbed by 3 million bpd month-on-month to the highest level ever, even as international production fell by 0.5 million bpd in the same month driven by lower production in the US, China, Angola, Canada and the UK, according to data from the Joint Organisations Data Initiative (Jodi).
"Crude has gathered a little upward momentum over the last week or so," Craig Erlam, senior market analyst at Oanda said.
"Brent has continued to see resistance around $77-$78 [per barrel level] though, but a break of this, taking it back into December to March territory, would be encouraging, with $80 [per barrel level] then being the next big test."