Oil edged up on Thursday as a tropical storm heading toward the Texas coast forced producers in the Gulf of Mexico to begin shutting in production and evacuating support staff. Gains were limited as uncertainty over Washington's ability to agree on a plan to raise the US debt ceiling before an August 2 deadline has kept investors on edge over a possible debt default or a credit rating downgrade.
"The storm is expected to have limited effect and concerns over the economy are keeping prices in check," said John Kilduff, partner at Again Capital LLC in New York. "The slight improvement in weekly jobless claims is not enough to offset the potential default concerns." US crude for September delivery settled 4 cents higher at $97.44 a barrel, climbing from an early, seven-day low of $96.51. In London, ICE September Brent crude closed down 7 cents at $117.36, off its $117.05 session low.
Brent's premium against US crude steadied at around $20, after closing Wednesday at $20.03. Early support came from data showing that first-time claims for US unemployment benefits dropped 24,000 to just below 400,000 for the first time since early April, seen as a hopeful sign for the economy.
Later, data showing an unexpected rise in pending home sales in June also helped keep oil prices up. The centre of Tropical Storm Don, the fourth named storm of the Atlantic hurricane season, is over the central Gulf of Mexico and was moving north-westward as it heads for the Texas coast, the US National Hurricane Center said. Energy companies operating in the Gulf of Mexico shut in 94,962 barrels, or 6.8 percent of oil output from the region and 148 million cubic feet per day, or 2.8 percent of natural gas production there ahead of the storm, a US government report showed. The Gulf's top oil producers - BP Plc, Exxon Mobil Corp and Anadarko Petroleum Corp - have begun shutting in oil and natural gas production, while other companies were evacuating support personnel.
Oil prices remain strong because the market believes Opec spare capacity is eroding fast and has probably fallen below 2 million barrels per day, Shell chief executive Peter Voser told Reuters Insider Television.
"It (oil price) reflects the expectations that demand will go up and supply will remain in a catch-up mode. It also reflects that Opec spare capacity is now below 2 million barrels (per day), according to the latest numbers," he said. But oil prices have seen a seesaw pattern in the past week as oil traders grapple with the possibility of a dreaded US credit downgrade, should Washington fail to agree to raise the nation's debt limit by the deadline.
The US House of Representatives is tentatively scheduled to vote between 5:45 pm and 6:25 pm EDT (2145-2225 GMT) Thursday on a Republican bill to cut the US deficit. The vote was predicted to be close, but an approval would break an inertia over the US debt crisis. "There's so much uncertainty out there on the debt limit talks in Washington," said Bill O'Grady, chief investment strategist at Confluence Investment Management in St. Louis, Missouri.