Oil Prices Fall on Concerns Over US Debt Default

Oil prices fell on Tuesday as concerns over a debt default in top consumer US offset optimism on expectations for a tight crude market due to a seasonal increase in gasoline demand and supply cuts from the Organization of the Petroleum Exporting Countries (OPEC) and its allies.

Global benchmark Brent crude oil futures traded 0.09% lower to $75.92 per barrel, while the US West Texas Intermediate (WTI) crude futures slipped 0.11% to $71.97 per barrel.

Brent extended gains earlier in the session, while WTI rose amid US gasoline futures rising 2.8% on the possibility of more fuel consumption at the start of Memorial Day on May 29, which marks the beginning of the summer season.

However, investors are keeping an eye on talks to increase the US’s debt limit. US President Joe Biden and House Speaker Kevin McCarthy have described their discussions regarding the $31.4 trillion debt ceiling held on Monday to be productive, although they have yet to reach a deal.

Failure to raise the debt ceiling above the current cap by next month could lead to a default that could rattle financial markets and result in higher interest rates, affecting the growth of local and international fuel demand.

Tight Oil Market Likely to Stay

Investors may continue to see a tighter market following implementation of the planned output reductions by the OPEC and allied oil-producing countries, including Russia, this month.

Analysts of Goldman Sachs Group Inc. stated that they expect sustained supply deficits from June as the group’s production cuts are fully carried out, and demand climbs further.

Most of the oil demand growth could come from Asia, where consumption is projected to rise by about 2 million barrels per day (bpd) in the second half of 2023.

Crude prices may also find steady ground on the US Department of Energy’s (DOE) plans to purchase 3 million barrels of sour oil for the Strategic Petroleum Reserve (SPR) for delivery in August.

Furthermore, analysts forecast a slight surge in crude stocks on the upcoming US inventory data, with the first of the two reports set to be presented by the American Petroleum Institute (API) on Wednesday.