Oil rises on US debt deal, but rate hikes and OPEC+ talks dampen enthusiasm

By Yuka Obayashi

TOKYO (Reuters) – Oil prices rose on Tuesday as a debt ceiling agreement in the United States, the world’s biggest user of oil, is expected to boost demand, but fears of further interest rate hikes and OPEC+ leaving production quotas unchanged are capping gains.

Brent crude oil futures climbed 35 cents, or 0.5%, to $77.42 a barrel at 0145 GMT after gaining 12 cents on Monday.

U.S. West Texas Intermediate (WTI) crude rose 53 cents to $73.20 a barrel, up 0.7% from Friday’s close. There was no settlement on Monday due to a US holiday.

While the debt ceiling agreement has spurred the buying of riskier assets such as commodities, the major oil producers will meet on June 4 and it is unclear whether they could increase their production cuts in the context of a general fall in prices since mid-April. Additionally, US interest rates are expected to rise further, which could hurt economic growth and hence oil demand.

“Investors turned their attention to the results of the OPEC+ meeting this weekend as major oil producers received mixed messages,” said Toshitaka Tazawa, analyst at Fujitomi Securities Co Ltd.

“A deal on the US debt ceiling has boosted risk appetite, but investors are reluctant to step up buying amid concerns over inflation and possible further interest rate hikes,” he said. he declared.

US President Joe Biden and Speaker of the House of Representatives Kevin McCarthy reached an agreement over the weekend to suspend the $31.4 trillion debt ceiling and cap government spending for the next two years.

Both leaders expressed confidence that Democratic and Republican lawmakers will back the deal. The US House Rules Committee said it would meet on Tuesday afternoon to discuss the debt ceiling bill, which must be passed by a divided Congress by June 5.

Investors are also watching closely whether the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, known as OPEC+, will change their production quotas.

Saudi Energy Minister Abdulaziz bin Salman last week warned short-sellers betting that oil prices would fall to “be careful”, in a possible signal that OPEC+ could further cut output.

However, comments from Russian oil officials and sources including Deputy Prime Minister Alexander Novak indicate that the world’s third-largest oil producer tends to leave output unchanged.

In April, Saudi Arabia and other OPEC+ members announced further oil production cuts of around 1.2 million barrels per day (bpd), bringing the total volume of cuts by the OPEC+ at 3.66 million bpd, according to Reuters calculations.

(Reporting by Yuka Obayashi; Editing by Christian Schmollinger)

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