Oil climbs after US leaders strike provisional debt deal

SINGAPORE  – Oil prices rose in early Asian trade on Monday after U.S. leaders reached a tentative debt ceiling deal, possibly averting a default in the world’s largest economy and oil consumer.

Brent crude futures climbed 39 cents, or 0.5 percent, to $77.34 a barrel by 2317 GMT, while U.S. West Texas Intermediate crude was at $73.12 a barrel, up 45 cents, or 0.6 percent.

U.S. President Joe Biden and House Speaker Kevin McCarthy on Saturday reached an agreement in principle to suspend the $31.4 trillion debt ceiling. Both leaders expressed confidence on Sunday that members of the Democratic and Republican parties will vote to support the deal.

READ:  Biden, McCarthy reach tentative US debt ceiling deal

However relief for global financial markets could be short-lived as once the deal is approved, the U.S. Treasury is expected to issue bonds that will further tighten liquidity and make funding more expensive for companies already reeling from high interest rates.

Last week, Brent and WTI notched a second consecutive weekly gain of more than 1% on the progress of the U.S. debt ceiling talks and after Saudi energy minister warned short-sellers betting oil prices will fall to “watch out” for pain.

Some investors took the warning as a signal that OPEC+, the Organization of Petroleum Exporting Countries and allies including Russia, could consider further output cuts at a meeting on June 4.

However, Russian Deputy Prime Minister Alexander Novak said last week he expected no new steps from OPEC+ as a decision on voluntary production cuts was made just a month back.

READ:  Russia’s Novak does not expect new steps from OPEC+ meeting

U.S. energy firms cut rigs for a fourth week in a row, with oil rigs down by five to 570 last week to their lowest since May 2022, energy services firm Baker Hughes Co said in its weekly report on Friday.

Investors are watching for China’s manufacturing and services data this week as well as U.S. nonfarm payroll data on Friday for signals on economic growth and oil demand.