Oil prices fall as concerns over US debt ceiling offset tight supply

Tokyo — Oil prices slipped on Tuesday as investor concern over the risk of a US debt default dampened risk appetite, though a tighter market due to a seasonal rise in fuel demand and supply cuts from cartel Opec producers lent support.

President Joe Biden and House of Representatives speaker Kevin McCarthy ended talks on Monday with no agreement on how to raise the US government’s $31.4-trillion debt ceiling and will keep talking with just 10 days before a possible default.

Brent crude fell 26c, or 0.3%, to $75.73 a barrel by 8.07am GMT, while US West Texas Intermediate (WTI) crude slipped by 24c, or 0.3%, to $71.81. Both had risen earlier in the session.

“The tug-of-war continues at the negotiating tables. No breakthrough yet,” said Tamas Varga of oil broker PVM. “Macro sentiment will remain the dominant price driver in the foreseeable future.”

Crude rose on Monday, gaining a tailwind from a 2.8% increase in US petrol futures ahead of the Memorial Day holiday on May 29, which traditionally marks the start of the peak summer demand season. As well as fuel demand, the onset in May of voluntary production cuts by several Opec+ members is expected to tighten supply.

“Oil prices are consolidating their bottoms, helped by a seasonal increase in US gasoline demand from next week,” said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.

Kikukawa also cited planned US purchases to refill the strategic petroleum reserve, after record sales last year as part of a strategy to stabilise prices in the aftermath of Russia’s invasion of Ukraine.

Also coming onto the radar is the latest US inventory data, which analysts expect to show a small rise in crude stocks.

Reuters