Oil prices wane as US races to secure deal over debt ceiling

Both major oil benchmarks dipped this morning – conceding earlier gains this week – as fears over the sustainability of the US debt ceiling made investors more cautious across markets.

Brent Crude was down 0.8 per cent in early trading, dropping to $76.45 per barrel while WTI Crude slumped 0.58 per cent to $72.25 per barrel – down 0.6 per cent from Friday’s close.

At the weekend, Democratic President Joe Biden and Republican speaker for the House of Representatives Kevin McCarthy reached an agreement over US debt – which stands at over $30tn.

Nevertheless, with the margins tight in both chambers of Congress, there are concerns the deal could be spoiled by various wings of the two parties.

There are concerns the progressive wing of the Democrats could oppose spending restrictions, while the hard-right phalanx of Republican lawmakers revealed yesterday they might oppose the deal for raising the debt ceiling.

The agreement must pass a divided US Congress before June 5 – the day The Treasury has warned the country will not be able to meet its financial obligations – which could disrupt financial markets across the world, with the dollar being the global, dominant currency.

This would have a significant effect on the outlook for oil demand and influence policies over supplies across government and major producers.

The debt deadline is just a day after the next meeting of OPEC and its allies including Russia (OPEC+), the world’s most influential oil cartel.

The group announced surprised cuts to output earlier this year – raising reductions to around 3.7m barrels per day.

As it stands, it is unclear how they will act with the recent slump in prices dragging down the market – with the previous manoeuvres only providing a short term bump-up in markets.

News agency Reuters has reported that Russia’s Deputy Prime Minister Alexander Novak expects the country’s output to be unchanged.

Russia is the world’s third largest producer – and is a highly influential player in energy markets.

However, Saudi Arabian Energy Minister Abdulaziz bin Salman last week warned that short-sellers anticipating that oil prices will fall should “watch out,” in a possible signal that OPEC+ may cut output.

As for future headwinds, Chinese manufacturing and service sector data is out later this week which also be assessed for fuel demand recovery in the world’s top oil importer.