Oil declined for the first time in five days on concern a failure to reach a deal on raising the U.S. debt limit may cause the nation to default, threatening the economy of the world’s biggest crude consumer. Futures dropped as much as 1.3 percent after House Speaker John Boehner told Republicans that there’s no agreement on a plan for increasing the ceiling before a default threatened for Aug. 2. Standard & Poor’s has warned there is a 50 percent chance it will lower the U.S. government’s AAA credit rating by one or more levels. Greece’s long-term foreign currency debt was cut three steps by Moody’s Investors Service today. “Uncertainty about the U.S. budget is translating into weaker commodity prices, including oil, today,” said Christopher Bellew, senior broker at Jefferies Bache Ltd. in London. “But the supply-demand fundamentals in oil suggest Brent crude will remain bound in a range of $115 to $120.” Crude for September delivery fell as much as $1.30 to $98.57 a barrel in electronic trading on the New York Mercantile Exchange and was at $98.69 at 12:43 a.m. London time. The contract advanced 2.7 percent last week, its fourth weekly gain. Prices are 25 percent higher in the past year. Brent for September settlement dropped as much as $1.75, or 1.5 percent, to $116.92 a barrel on the London-based ICE Futures Europe exchange. The European benchmark contract traded at a premium of $18.14 a barrel to U.S. futures, compared with a record close of $22.63 on July 14. Financial Investors Republicans prepared to force action on a shorter-term extension of the limit than President Barack Obama has requested, defying a veto threat. Obama would veto a measure that doesn’t extend the limit into 2013, White House Chief of Staff Bill Daley said in an interview on NBC’s “Meet the Press” yesterday. “For the financial investors, if the debt issue is not really resolved, they may cut a portion of their risky assets,” said Tetsu Emori, a commodity fund manager at Astmax Co. in Tokyo. “Crude oil is a kind of risky asset, so people may cut a part of their portfolio.” Any debt-limit increase must pass both the Republican- controlled House and the Democratic-run Senate and be signed by Obama. Democrats have resisted cuts to entitlement programs such as Social Security and Medicare and called for higher taxes, while Republicans have insisted a debt ceiling be accompanied by corresponding spending cuts and no tax increases. React Negatively Daley warned “markets around the world” would react negatively to a short-term measure offering less than $2.4 trillion in borrowing authority. A Republican congressional official said Boehner, speaking by telephone to lawmakers, is reporting that discussions are continuing. Even if Congress raises the limit in time to avert a default, Standard & Poor’s might lower the U.S. AAA sovereign credit rating to AA+ with a negative outlook if a deal isn’t accompanied by a “credible solution” on the debt burden, it said in a report July 21. “In the event of a U.S. default, the dollar should weaken further and as a consequence oil prices should rally, at least until a commonly agreed solution to the U.S. situation is reached,” said John Sfakianakis, chief economist at Riyadh- based Banque Saudi Fransi. “As of yet, oil prices have not yet priced in a U.S. default outcome fully.” Hedge funds raised net-long positions in New York-traded crude by 8 percent to 182,285 in the week ended July 19, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. Money managers raised bullish bets on Brent crude by 11 percent in the week ended July 19, according to data from ICE Futures Europe. Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 91,162 contracts, the London-based exchange said today in its weekly Commitment of Traders report. Net-long positions rose by 9,377 contracts, from 81,785 a week earlier. To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net Grant Smith in London at gsmith52@bloomberg.net To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net

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