Oil Prices Climb as US Debt Default Risk Caps Gains
Key Highlights :
Oil prices continued to climb on Tuesday, as investors expected a tighter market led by a seasonal rise in gasoline demand and supply cuts from OPEC+ producers. Despite this, concerns over the risk of a US debt default capped gains, with Brent crude futures rising 0.37% to $76.27 a barrel and US West Texas Intermediate (WTI) crude increasing 0.43% to $72.36 a barrel.
Ahead of the Memorial Day holiday on May 29 that traditionally marks the start of the peak summer fuel demand season, US gasoline futures increased by 2.8%, supporting the rise in oil prices. Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities, noted that this was due to a seasonal increase in US gasoline demand from next week, production cuts by OPEC+ from this month, and planned US purchases to refill the Strategic Petroleum Reserve (SPR).
In addition, Goldman Sachs analysts said that they “expect sustained (oil supply) deficits from June as OPEC+ production cuts fully realize and demand rises further.” Asia is expected to lead much of this oil demand growth, with consumption increasing by around 2 million barrels per day (bpd) in the second half of the year.
However, investors are also focused on negotiations to raise the debt limit of the US, the world’s biggest oil consumer, which could result in a default if an agreement is not reached in the next 10 days. This would likely spark chaos in financial markets and a spike in interest rates, impacting fuel demand growth both domestically and globally. Jun Rong Yeap, a market strategist at IG in Singapore, noted that the debt ceiling talks have kept a “cautious lid” on oil prices, but a positive up move on any eventual resolution could remain on the table.
