After the jump in the oil prices yesterday sparked by an agreement to raise the U.S. debt limit and cut spending, crude oil fell today after the weak US manufacturing data that reignited fears about slowing growth in the world's biggest oil consumer in addition to a strengthening dollar which pushed oil further to the downside.
Light sweet crude oil opened today at $95.05 a barrel recording the intraday high at $95.43 a barrel and a low of $94.03 a barrel and is currently trading around $94.14 a barrel.
On the other hand, the U.S. dollar index, which tracks the dollar movements versus a basket of major currencies, surged today, as it opened at 74.33 recording the highest at 74.61 and the lowest at 74.21 and is currently trading around 74.54.
Yesterday, the Institute for Supply Management released its ISM Manufacturing which came in at 50.9; still above the marginal fifty, which represents expansion, but lower than the market projections of 54.5 and the prior reading of 55.3 and therefore indicating a clear slowdown in manufacturing activities across the superpower's economy. This data, coupled with last Friday's GDP that showed the economy is worse than many economists expected.
The manufacturing sector has been showing signs of weakness over the past couple of months, as overall economic conditions remain weak, and fears are mounting that the U.S. economy could still weaken further over the coming period.
However concerns eased in the US regarding the debt ceiling since President Barack Obama announced yesterday publicly a last-minute deal to actually raise the U.S borrowing limit and urged lawmakers to "do the right thing" and actually support the proposed agreement knowing that it has been confirmed from Obama himself that "the leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default".
The debt ceiling agreement will be implemented in two steps, where the first one includes raising the debt ceiling until 2013 and also $2.4 trillion in spending cuts over the next 10 years. The house voted 269-161 yesterday and the Senate will vote on the bill today.
For oil traders, the slowdown in the industrial sectors offset the relief after an agreement yesterday by Congressional leaders to raise the debt ceiling and cut spending, more fundamentals will be released today from the US, so we expect volatility and fluctuations in the market.