Oil slips as economic jitters offset US debt deal

Oil prices slipped on Monday as economic worries over further interest rate hikes trumped a tentative debt ceiling deal reached in the US, possibly averting a default in the world’s largest economy and oil consumer.

Brent crude futures slipped 68 cents, or 0.8%, to $76.27 a barrel by 1350 GMT, while U.S. West Texas Intermediate crude was at $72.11 a barrel, down 56 cents or 0.7%.

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

US President Joe Biden and House Speaker Kevin McCarthy over the weekend forged an agreement to suspend the $31.4 trillion debt ceiling and cap government spending for the next two years. Both leaders expressed confidence that members of the Democratic and Republican parties will vote to support the deal.

Still, analysts saw any boost in oil prices from the debt deal as short lived, with earlier gains in the session now lost.

The US Federal Reserve may still raise interest rates in June, IG’s Sydney-based analyst Tony Sycamore said. “Higher U.S. rates are a headwind for crude oil demand,” he added.

Markets are leaning towards expecting the Fed to raise rates by 25 basis points next month, then keep rates steady for the rest of the year.

Chinese stocks fell after data showed profits slumping at China’s industrial firms.

Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known as OPEC+, is due to meet on June 4.

Saudi energy minister Abdulaziz bin Salman warned short-sellers betting that oil prices will fall to “watch out”, in a possible signal that OPEC+ may further 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.

“Traders have been left a little confused as to what we can expect,” said Craig Erlam, senior markets analyst at OANDA.

“It may be that Saudi Arabia wants to keep traders on their toes, but to make these comments and not follow through could be perceived as weak and see prices drift lower again,” Erlam said.