Oil prices fall amid US credit downgrade and talks on Russia-Ukraine war
Photo: Oil prices fell due to the US credit rating downgrade (Getty Images)
Oil prices fell amid talks on ending Russia's war against Ukraine and the downgrade of the US credit rating, according to Bloomberg.
Brent fell on May 19 by 1.1% to 65 dollars per barrel, while West Texas Intermediate was trading around 62 dollars.
Risky assets weakened after Moody's Ratings agency stripped the US government of its top credit rating. The downgrade, following similar moves by other major agencies, risks intensifying growing Wall Street concerns about the US sovereign bond market and economic slowdown.
In addition, US President Donald Trump and Vladimir Putin will hold a telephone conversation today, although Putin may believe he is gaining the upper hand in combat operations and, therefore, is unlikely to make concessions, writes Bloomberg.
"While down this morning, Brent crude is surprisingly not shedding all that much value given the rather bearish backdrop of US equity futures in the red," said Bjarne Schieldrop.
Crude oil prices have surged over the past two weeks amid growing uncertainty regarding the course of negotiations between the US and Iran and after Israeli strikes on Houthi-controlled areas of Yemen, which provoked promises of retaliation.
Futures remain more than 10% lower this year as Trump’s trade war threatens demand, and OPEC+ brings back previously halted production to a market expected to be oversupplied by the end of the year.
US rating downgrade
Moody’s announced on the evening of May 16 that it was stripping the US government of its highest credit rating, downgrading the country from Aaa to Aa1.
Many had expected such a move from Moody’s — the federal budget deficit is approaching 2 trillion dollars a year, or more than 6% of GDP. The rating agency blamed presidents and members of Congress, who have succeeded one another, for the bloated budget deficit, which shows no signs of shrinking.
The downgrade risks intensifying Wall Street's growing concerns about the US sovereign bond market, as President Donald Trump revises trade agreements and dismantles established partnerships.
The yield on 10-year US Treasury bonds rose by four basis points to 4.52%, while their 30-year equivalents rose by six basis points to 5.00%.
The increase in Treasury yields will also make it harder for the government to cut spending due to higher interest payments, and it also poses a threat of weakening the economy through rising rates on loans such as mortgages and credit cards.
US Treasury Secretary Scott Bessent downplayed concerns about US national debt and the inflationary impact of tariffs, stating that the Trump administration is determined to reduce federal spending and stimulate economic growth. Bessent said: "Moody’s is a lagging indicator — that’s how everyone thinks about the rating agencies."
President of the European Central Bank Christine Lagarde stated that the recent fall of the dollar against the euro goes against common sense, but reflects uncertainty and loss of confidence in US policy among certain segments of financial markets.
The S&P agency downgraded the US rating back in 2011.
