Oil edged higher from earlier losses in choppy trading today as the market focus shifted to the potential for a weaker dollar amid concerns about the US budget negotiations to avert a debt default.
US crude leading the oil complex, up 92 cents at $96.61 a barrel by 1341 GMT. Brent crude was up 79 cents at $117.05 a barrel.
"The dollar. It is all about the U.S. debt ceiling. If they do not do a deal, then Moody's will downgrade US debt," a New York-based trader said.
US president Barack Obama suspended US budget negotiations for the day to give congressional leaders a chance to come up with a "plan of action" on how to unblock talks meant to cut deficits and avert a debt default. The talks may resume over the weekend
Mr Obama, who had vowed to meet top lawmakers every day until a deal is reached to raise the US debt limit, gave top Democrats and Republicans until tomorrow morning to reconsider their positions in the high-stakes negotiations.
He will hold a news conference today at 11.00am EDT (1500 GMT).
Earlier this week, Moody's Investors Service warned for potential downgrade of the US debt.
Standard & Poor's chimed in today, warning that there was a one-in-two chance it could cut the prized triple-A rating within the next 90 days if a deal to raise the government's debt ceiling is not struck by the White House and Republicans.
The dollar-euro traded mostly in a range today as investors in Europe awaited the results of stress tests for 90 banks due at 1600 GMT, which could force some to seek state aid.
Earlier otoday when European traders were a majority of the players in the oil market, the same US debt woe drove oil prices lower, being interpreted as a threat to the global economy. The United States is the world's largest economy and the euro zone has already been hit by spate of downgrades.
"It is overall economic concerns that are driving the oil price this morning," said Eugen Weinberg, a senior commodity analyst at Commerzbank in Frankfurt.
Support to US crude also came from Citigroup, which reported a 24 per cent jump in its second-quarter profit, beating analysts' expectations.
US consumer prices fell slightly more than expected in June to post their biggest drop in a year on weak gasoline costs, government data showed today, pointing to a cooling in commodity-driven inflation pressures, figures from the US Labor Department showed.
The market is also weighing the possibility of a second round of strategic petroleum reserve releases, after the US was reported to be considering it.
Germany and Italy are likely to oppose a second release a French government source said on Friday.
Analysts such as Commerzbank's Weinberg say the market is well supplied, a view reiterated by Iran's caretaker oil minister, who said there is plenty of oil to satisfy global demand and no need to increase production.
Reuters
