Oil rises in early trade after US leaders strike a provisional debt deal

29 May 2023 , 10:57 AM

Following the potential debt ceiling agreement made by American leaders, which may have prevented a default in the largest economy and largest user of oil, oil prices increased in early Asian trade on Monday.

Brent crude futures had risen 39 cents, or 0.5%, to $77.34 per barrel, while U.S. West Texas Intermediate crude had risen 45 cents, or 0.6%, to $73.12 per barrel.

On Saturday, House Speaker Kevin McCarthy and U.S. President Joe Biden reached a preliminary agreement to suspend the $31.4 trillion debt ceiling. On Sunday, both leaders expressed confidence that both Democrats and Republicans will vote in favour of the agreement.

The U.S. Treasury is anticipated to issue bonds after the agreement is ratified, which will further restrict liquidity and raise the cost of financing for businesses that are already suffering from high-interest rates. As a result, the relief for the global financial markets may not last long.

The progress of the U.S. debt ceiling negotiations and the Saudi energy minister’s warning to short-sellers betting on a decline in oil prices to ‘watch out’ for pain contributed to Brent and WTI’s second consecutive weekly increase of more than 1% last week.

Some investors interpreted the caution as an indication that OPEC+, which consists of allies including as Russia and the Organisation of Petroleum Exporting Countries, would discuss additional output restrictions at a meeting on June 4.

Alexander Novak, the deputy prime minister of Russia, stated last week that OPEC+ will not be taking any more action because the decision to implement voluntary production cuts had just been taken one month earlier.

The number of oil rigs in the United States dropped by five last week to 570, the lowest level since May 2022, according to a report released on Friday by energy services company Baker Hughes Co.

Investors are looking for signs of economic growth and oil demand in China’s manufacturing and services statistics this week as well as in the U.S. nonfarm payroll data on Friday.

For feedback and suggestions, write to us at [e-mail]