BackOil prices ease on demand optimism; US debt ceiling talks, G7 Summit in focus
The IEA predicted the demand would outpace supply by 2 million barrels per day in the second half of the year, with China making up 60 per cent per cent of oil demand growth in 2023.
PremiumOil prices eased and traded broadly stable on May 18 after optimism grew on US oil demand as investors await signs of progress on talks to raise the US debt ceiling. Earlier this week, the International Energy Agency predicted the demand would outpace supply by 2 million barrels per day (bpd) in the second half of the year, with China making up 60 per cent per cent of oil demand growth in 2023.
The optimism outweighed a crude inventory increase of 5 million barrels in the week ended May 12 reported by the Energy Information Administration. Brent crude futures inched down 13 cents, or 0.2 per cent, to $76.83 a barrel. US West Texas Intermediate crude dipped 12 cents, or 0.2 per cent, to $72.71 a barrel.
A sharp decline in US gasoline inventories due to demand surging to the highest levels since 2021, and optimism surrounding negotiations over the US debt ceiling, supported the main crude benchmarks settle more than $2 higher on May 17.
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US debt ceiling, G7 Summit in focus for oil markets:
US debt ceiling talks: President Joe Biden and top US congressional Republican Kevin McCarthy on Wednesday underscored their determination to reach a deal to raise the government's $31.4 trillion debt ceiling and avoid an economically catastrophic default.
A debt agreement needs to be reached and passed by both chambers of Congress before the government runs out of money to pay its bills, which could be as soon as June 1. Also, European equities were up and the US dollar hit a new seven-week peak on Thursday, making oil more expensive for holders of other currencies.
In addition, traders are pricing in around a 20 per cent chance the Federal Reserve will raise rates at its June meeting, whereas a month ago, traders were pricing in around for a 20 per cent chance of a cut.
‘’The strength of April U.S. economic data, in addition to optimism about the debt ceiling negotiations and the health of regional banking stocks overnight have strengthened market expectations of a further hike'', said ANZ Research in a note.
G7 to target Russian oil: Leaders of the Group of Seven (G7) nations plan to tighten sanctions on Russia at their summit in Japan this week, with steps aimed at energy and exports supporting Russia's war efforts.
The new measures announced by the leaders during the May 19-21 meetings is likely to target the sanctions evasion involving third countries, and seek to undermine Russia's future energy production. This will likely deprive Moscow of funds will create more uncertainty for oil markets and add to the pressure on oil prices, including diesel, according to the IEA.
Meanwhile, Russian President Vladimir Putin said that that oil production cuts were required to maintain a certain price level, contradicting assurances from other leaders of the OPEC+ group of producers that it was not seeking to manage the market in that way.
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