Oil prices eased on Thursday as traders warily watched for signs of progress on talks to raise the U.S. debt ceiling, after surging in the previous session on optimism over U.S. fuel demand.
Brent crude futures dipped 37 cents, or 0.5%, to $76.59 a barrel as of 0841 GMT. U.S. West Texas Intermediate crude dropped 34 cents, or 0.5%, to $72.49 a barrel.
A sharp plunge in U.S. gasoline inventories due to demand surging to the highest levels since 2021, and optimism surrounding negotiations over the U.S. debt ceiling, helped the main crude benchmarks settle more than $2 higher on Wednesday.
The U.S. dollar held near a seven-week peak on Thursday, making oil more expensive for holders of other currencies.
President Joe Biden and top U.S. congressional Republican Kevin McCarthy on Wednesday underscored their determination to reach a deal soon to raise the federal government’s $31.4 trillion debt ceiling and avoid an economically catastrophic default.
A debt agreement needs to be reached and passed by both chambers of Congress before the government runs out of money to pay its bills, which could be as soon as June 1.
Also weighing on prices was the increased possibility of another interest rate hike by the U.S. Federal Reserve.
Traders are pricing in around a 20% chance the Fed will raise rates at its June meeting, whereas a month ago, traders were pricing in around a 20% chance of a cut.
The strength of April U.S. economic data, in addition to optimism about the debt ceiling negotiations and the health of regional banking stocks overnight have strengthened market expectations of a further hike, ANZ Research said in a note on Thursday.