Oil prices exhibited limited movement on Monday as traders exercised caution ahead of the resumption of U.S. debt ceiling negotiations, while concerns over supply provided some support.
As of 09:30 ET (13:30 GMT), U.S. crude futures experienced a marginal 0.1% decline, settling at $71.59 per barrel, while the Brent contract slipped by 0.1% to $75.52 per barrel.
Later in the session, U.S. President Joe Biden and Republican House Speaker Kevin McCarthy are scheduled to meet in an attempt to reach an agreement on raising the debt ceiling, which currently stands at over $31 trillion.
The market has been weighed down in recent weeks by apprehensions surrounding the inability to reach a satisfactory compromise. Failure to do so would result in a U.S. default on its debt obligations, potentially triggering a global economic recession.
The U.S. Treasury has warned that the government may exhaust its funds to pay its bills as early as June 1.
Despite these concerns, both crude benchmarks managed to register gains last week, putting an end to four consecutive weeks of substantial declines. These gains were supported by the U.S. government’s initiation of refilling its Strategic Petroleum Reserve and supply disruptions in Canada caused by early wildfires in the crude-rich Alberta province.
Furthermore, the most recent data from Baker Hughes revealed that the U.S. oil rig count dropped by 11 during the past week, reaching its lowest count since June 2022.
Analysts at ING expressed their concerns, stating, “A slowdown in U.S. drilling activity is a cause for worry in the oil market, especially considering the expected significant deficit in the second half of the year.” They added, “Producers seem to be reacting to the weakened price environment rather than anticipating a tighter market later in the year.”
This highlights the significance of the upcoming meeting of the Organization of Petroleum Exporting Countries and its allies, collectively known as OPEC+, which is scheduled for early July.
During the previous meeting, OPEC+ surprised the market by implementing an output cut at the beginning of this month. However, this move has done little to bolster crude prices, suggesting that the members may consider further reducing production.
The fact that U.S. producers are not increasing in number brings positive news for OPEC+. ING noted, “It implies that OPEC+ will be able to continue supporting prices without the risk of losing market share to U.S. producers.”
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