On Monday, a tentative debt ceiling agreement was achieved by the leaders of the world’s largest economy and the largest oil consumer, the United States of America. Oil prices increased, and there were increases in worries about future interest rate hikes.
The trade is anticipated to be subdued on Monday, as there are holidays in the UK and U.S. Brent crude futures rose by 0.9%, which hiked up to $77.61 a barrel; on the other hand, Texas Intermediate crude hiked by 1%, which closed at $73.42 a barrel.
On Saturday, it was finalized in principle in an agreement to suspend the $31.4 trillion debt ceiling, and they planned to impose a two-year cap on the government. As the agreement was finalized by House Speaker Kevin McCarthy and U.S. President Joe Biden. There was a lot of confidence among both the leaders that both parties, Democratic and Republican, would support the deal and vote for it.
The investors’ interest increased in risky assets like commodities because of the achievement of the deal and the chance of avoiding a default on U.S. debt.
A CMC markets analyst, Tina Teng, said, “The tentative debt deal offered a relief rally in risk assets, including crude oil.”
WTI and Brent gained for the second week and hiked by more than 1% last week. After the negotiations were made for the U.S. debt ceiling, the prices were increased. There was a warning for the short sellers who believed and were counting on a decline in oil prices. The warning was from Saudi Energy Minister Abdulaziz bin Salman, who said to “watch out” for pain.
The warning was meant as a signal for OPEC, or the Organization of Petroleum Exporting Countries, and its allies like Russia, known as OPEC+, as their output may be cut when they meet on June 4.
It was suggested that the world’s third-largest oil producer is inclining towards leaving output unchanged, as indicated by Russian oil officials and sources like Deputy Prime Minister Alexander Novak.
According to the analyst, the debt deal will increase the oil price for a short time. According to Sydney-based analyst Tony Sycamore, the sustainability of the rally is questionable as there are more chances for the Federal Reserve to increase interest rates in June as their preferred inflation index increased more than anticipated for April.
He added, “Higher U.S. rates are a headwind for crude oil demand.” The investors will keep an eye on the service and manufacturing data in China and the U.S. nonfarm data. As for the signals for oil demand and economic growth.
Teng said the oil market is affected by the bumpy economic recovery in China. According to the weekly report released on Friday by Baker Hughes Co., there were almost 570 active oil rigs, which was the lowest number since May 2022. As the world’s biggest oil producer, the U.S. may slow down its future oil output growth as the energy companies remove rigs for the fourth week.
