The anticipation that the debt ceiling agreement in the world’s largest oil consumer, the United States, will increase demand drove up oil prices on Tuesday, but gains were restrained by worries about future interest rate increases and the maintenance of current OPEC+ output quotas.
After gaining 12 cents on Monday, Brent crude futures increased by 35 cents, or 0.5%, to $77.42 a barrel.
WTI crude for the United States gained 53 cents to reach $73.20 a barrel, up 0.7% from Friday’s finish. Due to a U.S. federal holiday, there was no settlement on Monday.
While the agreement on the debt ceiling has encouraged investors to purchase riskier assets like commodities, major oil producers will meet on June 4 and it is uncertain whether they will decide to further reduce their output given the general decline in prices since the middle of April. Additionally, it is anticipated that U.S. interest rates would increase further, which might slow down economic expansion and, consequently, oil demand.
Over the weekend, U.S. President Joe Biden and Speaker of the House Kevin McCarthy reached an agreement to suspend the $31.4 trillion debt ceiling and set a spending ceiling for the government for the following two years.
Both leaders expressed optimism that the agreement will receive backing from both Democratic and Republican members. The debt ceiling bill needs to be approved by a divided Congress by June 5 and the U.S. House Rules Committee said that it will meet on Tuesday afternoon to examine it.
Investors are also closely monitoring any potential changes to the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, which includes Russia, together known as OPEC+.
Last week, Saudi Arabia’s Energy Minister Abdulaziz bin Salman advised short-sellers who were wagering that oil prices would decline to ‘watch out,’ possibly indicating that OPEC+ may further reduce supply.
Thoughts from Russian oil officials and sources, such as Deputy Prime Minister Alexander Novak, suggest the third-largest oil producer in the world is inclined to maintain output.
OPEC+ reduced its oil production by an additional 1.2 million barrels per day (bpd) in April, according to calculations by Reuters, bringing the total amount of cutbacks to 3.66 million bpd.
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