Oil prices continued to rise Tuesday in tighter market conditions amid a seasonal increase in investor demand for gasoline and supply cuts from OPEC+ producers, but concerns over the risk of US debt default are capping earnings.
Brent crude futures rose 28 cents, or 0.37%, at 0320 GMT to $76.27 a barrel while West Texas Intermediate (WTI) crude was at $72.36 a barrel, up 31 cents, or 0.43%.
It was the second day of gains after Brent rose 0.5% on Monday. WTI gained 0.6%, up 2.8% in US gasoline futures ahead of the Memorial Day holiday on May 29, which traditionally marks the start of the peak summer fuel demand season.
Oil prices are solidifying their fundamentals, aided by a surge in US gasoline demand next week, OPEC+’s production cuts this month, and planned US purchases to replenish the Strategic Petroleum Reserve (SPR).
Last week, the U.S. Department of Energy said it would buy 3 million barrels of crude to replenish the SPR for delivery in August.
Voluntary production cuts from the Organization of the Petroleum Exporting Countries and their allies, including Russia, that went into effect this month are also expected to keep oil markets tight.
Oil supply deficits are expected from June due to OPEC+ production cuts and a further increase in demand.
Asia is expected to lead the growth in oil demand, increasing consumption by around 2 million barrels per day in the second half of the year.
Still, investors are also focused on negotiations to raise the debt limit of the United States, the world’s largest oil consumer. US default will likely cause financial market chaos and a spike in interest rates, affecting fuel demand growth both domestically and globally.
Discussions ended on Monday before an agreement was reached on how to raise the US government’s $31.4 trillion debt ceiling, and they will continue to discuss the issue with just 10 days left in a possible default.
The central focus revolves around the US debt ceiling talks as it carries a wider risk. While this is creating a cautious upside effect for now, it would be unfortunate that the final solution remains on the table on this front.