Oil prices steady on US debt limit deal; Fed rate hike fears to keep investors on toes

Oil prices were steady on May 29 after US leaders reached a tentative debt ceiling deal, possibly averting a default in the world's largest economy and top oil consumer, but concerns about further interest rate hikes have capped gains and keeps investors on their toes. The provisional deal has taken pressure off the markets, offering a relief rally in risk assets, including crude oil, according to analysts. Trade is expected to be subdued due to the US Memorial day holiday.

Benchmarks Brent crude futures slipped 20 cents, or 0.2 per cent, to $76.75 a barrel, while US West Texas Intermediate crude was at $72.58 a barrel, down 9 cents, or 0.1 per cent. On Multi Commodity Exchange (MCX), crude oil futures due for a June 16 expiry, were last seen trading higher by 0.03 per cent at ₹6,006, having swung between ₹6,004 and ₹6,076 during the session so far, compared to their previous close of ₹6,004.

Also Read: Week Ahead | OPEC+ output, US debt ceiling, Asia oil demand: Key triggers for global oil market
 

US debt limit deal, OPEC+ meeting: Key triggers for oil market this week

US President Joe Biden and House Speaker Kevin McCarthy over the weekend forged an agreement to suspend the $31.4 trillion debt ceiling and cap government spending for the next two years. Both leaders expressed confidence that members of the Democratic and Republican parties will vote to support the deal. Reaching the agreement and coming closer to avoiding a default on U.S. debt renewed investor appetite for riskier assets such as commodities.

"We could see more gains as a relief rally gets under way in the broader financial markets when the U.S. comes back from the long Memorial Day weekend," said Vandana Hari, founder of oil market analysis provider Vanda Insights. Analysts see any boost in oil prices from the debt deal as short-lived. The US Federal Reserve may still raise interest rates in June, IG's Sydney-based analyst Tony Sycamore said: "Higher US rates are a headwind for crude oil demand," he added.

The market will take further cues from the upcoming meeting of oil producing cartel Organization of Petroleum Exporting Countries and its allies or OPEC+, even as conflicting messages from Russia and Saudi Arabia's energy minister have kept oil prices on edge.

Saudi's Prince Abdulaziz bin Salman recently announced that he would inflict more pain on short sellers and told them to watch out just days before a planned OPEC+ meeting to decide on future oil policy. On the other hand, Russia’s deputy prime minister Alexander Novak played down the prospect and poured some cold water on expectations of another supply cut, saying he doesn’t expect new steps.

"I don't think that there will be any new steps, because just a month ago certain decisions were made regarding the voluntary reduction of oil production by some countries..." Novak was quoted as saying by a Russia-based newspaper.