Oil slumps on uncertainty over US debt pact and supply

Oil fell almost 2% on Tuesday as concerns about the US debt ceiling pact cooled sentiment, and mixed messages from major producers clouded the supply outlook ahead of their meeting this weekend.

Brent crude futures fell $1.36, or 1.8%, to $75.71 a barrel by 8.59am GMT. West Texas Intermediate crude was down $1.19, or 1.6%, from Friday's close, to $71.48 a barrel. There was no settlement on Monday because of a US public holiday.

Some hard-right Republican lawmakers said on Monday they might oppose a deal that would raise the debt ceiling in the US, the world’s biggest oil user, while Democratic President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy remained optimistic the deal would approved.

Biden and McCarthy forged an agreement over the weekend and it must pass a divided US Congress before June 5, the day the Treasury Department says the country will not be able to meet its financial obligations, which could disrupt financial markets.

"A potential default would have catastrophic economic repercussions domestically as well as globally, which would have an adverse impact on oil demand,” PVM Oil’s Tamas Varga said.

The debt deadline is just a day after the next meeting of Opec and allies including Russia, known as Opec+, and the uncertainty whether they will increase their output cuts after a recent slump in prices is also weighing on the market.

Saudi Arabian energy minister Abdulaziz bin Salman last week warned short-sellers betting that oil prices will fall to "watch out” in a possible signal that Opec+ may cut output.

However, comments from Russian oil officials and sources, including Deputy Prime Minister Alexander Novak, indicate the world’s third-largest oil producer is leaning towards leaving output unchanged.

In April, Saudi Arabia and other members of Opec+ announced further output cuts of about 1.2-million barrels a day, taking the total volume of cuts by the organisation cartel to 3.66-million barrels, according to Reuters calculations.

Chinese manufacturing and service sector data due later this week will also be scrutinised for cues on the fuel demand recovery in the world’s top oil importer.

Reuters