30-5-2023 (TOKYO) Oil prices witnessed an upward trend on Tuesday in Tokyo as anticipation built around a potential debt ceiling deal in the United States, the largest consumer of oil globally. However, concerns over further interest rate hikes and the possibility that the Organization of the Petroleum Exporting Countries and its allies (OPEC+) would maintain current output quotas limited the gains.
Brent crude futures experienced a 0.5% increase, rising by 35 cents to reach $77.42 per barrel as of 0145 GMT. This followed a minor gain of 12 cents on Monday.
The US West Texas Intermediate (WTI) crude also saw an uptick, rising by 0.7% or 53 cents to $73.20 per barrel, surpassing Friday’s closing price. There was no settlement on Monday due to a public holiday in the United States.
While the debt ceiling deal spurred investment in riskier assets such as commodities, major oil producers are scheduled to convene on June 4 to discuss the possibility of adjusting output cuts, given the overall decline in prices since mid-April. Furthermore, concerns persist regarding the potential rise in US interest rates, which could hinder economic growth and subsequently dampen oil demand.
Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd, explained, “Investors have now shifted their focus towards the outcome of the OPEC+ meeting this weekend, as there have been conflicting signals from major oil producers. A US debt ceiling deal has boosted risk appetite, but investors remain hesitant to increase purchases due to worries about inflation and the potential for further interest rate hikes.”
Over the weekend, US President Joe Biden and House of Representatives Speaker Kevin McCarthy reached an agreement to suspend the $31.4 trillion debt ceiling and impose spending caps for the next two years. Both leaders expressed confidence in garnering support from lawmakers across party lines. The US House Rules Committee is scheduled to convene on Tuesday afternoon to discuss the debt ceiling bill, which must pass through a divided Congress before June 5.
Investors are also keeping a close eye on any potential changes to output quotas by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia (known as OPEC+).
Saudi Energy Minister Abdulaziz bin Salman cautioned short-sellers who were betting on a decline in oil prices to “watch out” last week, hinting at the possibility of further output cuts by OPEC+. However, statements from Russian oil officials and sources, including Deputy Prime Minister Alexander Novak, suggest that the world’s third-largest oil producer is leaning towards maintaining current output levels.
In April, Saudi Arabia and other OPEC+ members announced additional oil output cuts of approximately 1.2 million barrels per day (bpd), bringing the total volume of cuts by OPEC+ to 3.66 million bpd, according to calculations by Reuters.
