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Oil Rises after US leaders reach a temporary debt ceiling deal

Worries about rate hike limit the earnings


Oil prices rose on Monday after U.S. leaders agreed to a temporary debt ceiling that would prevent the world’s largest economy and oil consumer from defaulting, but concerns about further rate hikes capped gains.

Brent crude futures climbed 66 cents, or 0.9%, at 0247 GMT to $77.61 a barrel, while West Texas Intermediate (WTI) crude was at $73.42 a barrel, up 75 cents, or 1%.

Trade is expected to be subdued on Monday because of UK and U.S. holidays.

Joe Biden and Kevin McCarthy reached an agreement in principle Saturday to suspend the $31.4 trillion debt ceiling and limit government spending for the next two years. Both leaders expressed confidence on Sunday that Democratic and Republican party members will vote in support of the agreement.

Reaching the deal and coming closer to avoiding a default on U.S. debt renewed investor appetite for riskier assets such as commodities.

The tentative debt deal offered a relief rally in risky assets, including crude oil.

Last week, Brent and WTI gained more than 1% to win in their second week.

Prices rose after progress in the US debt ceiling talks and Saudi energy minister Abdulaziz bin Salman warned the short-sellers who bet on the expectation that oil prices would fall.

Salman’s warning was seen as a sign that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, could cut production further when they meet on June 4.

However, comments from Russian oil officials and sources, including Deputy Prime Minister Alexander Novak, show that the world’s third-largest oil producer is not intended to change production.

Analysts believe the rise in oil prices resulting from the debt deal is short-lived.

Analysts say the sustainability of the rally is questionable as the US Federal Reserve is likely to raise interest rates in June, with higher US rates a headwind for crude oil demand.

Investors will be watching manufacturing and services data in China, the world’s largest oil importer, this week, and US nonfarm payrolls data on Friday for signals on economic growth and oil demand.

The bumpy economic recovery in China is putting pressure on oil markets.

Future oil production growth in the US, the world’s largest producer, could also slow as energy firms do not increase their rigs for the fourth week. Baker Hughes said in its weekly report Friday that the number of oil rigs in operation fell by five pieces last week to 570, the lowest level since May 2022.