Oil settled higher on US debt deal after week-long volatility; all eyes on OPEC+

The focus has now shifted to the policy outcome of Organization of the Petroleum Exporting Countries and its allies, or OPEC+ on June 4, which will impact oil prices and set the course for price fluctuations in the near-term. OPEC+ is considering the deepening of oil production cuts, possibly by as much as 1 million barrels per day (bpd) in tomorrow’s meeting, according to news agency Reuters.

Also Read: OPEC+ considering 1 mln bpd supply cut on June 4; total reduction to be 4.5% of global demand

Oil closing prices in previous session

Brent futures rose $1.85, or 2.5 per cent, to settle at $76.13 a barrel, while US West Texas Intermediate (WTI) crude rose $1.64, or 2.3 per cent, to settle at $71.74. The closes were the highest since May 26 for WTI and May 29 for Brent. For the week, both contracts were down about one per cent, in their first weekly losses in three weeks. The open interest in futures contracts rose on Thursday to the highest since July 2021 for Brent and March 2022 for WTI.

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a June 16 expiry, settled higher by 1.54 per cent at ₹5,918 per bbl on June 2, having swung between ₹5,804 and ₹5,952 per bbl during the session so far, compared to their previous close of ₹5,828 per bbl.
 

US debt ceiling bill approved; jobs data instills hope of pause in rate hike

The US Senate approved a bipartisan deal to suspend the limit on the government debt ceiling, following approval in the House of Representatives – staving off a default that would have sent ripples across the global financial markets. 

The final agreement was supposed to be approved by a divided US Congress before June 5 – the deadline set by the Treasury Department for meeting the financial obligations. Known as the Fiscal Responsibility Act of 2023, the bill provides for an increase to the debt ceiling of $31.4 trillion for two years, which means President Joe Biden will not need to negotiate it again before the November 2024 presidential election.

Also, US employment increased more than expected in May, but a moderation in wages could allow the US Federal Reserve to skip a rate hike this month for the first time in more than a year, which could support oil demand.

Also Read: What is the US debt ceiling deal and how is it affecting oil prices?

What will OPEC+ decide?

Oil traders and analysts are awaiting the policy outcome of OPEC+ which is set to meet tomorrow at 2 pm in Vienna. The oil producing cartel had announced a surprise production cut of 1.16 million bpd in a surprise decision in April, but resulting price gains have been erased and crude is trading below the pre-cut levels.

If approved, the oil output cuts of 1 million bpd on top of the existing cuts of 2 million bpd and April’s voluntary cuts of 1.6 million bpd, would take the total volume of reductions to 4.66 million bpd, or around 4.5 per cent of the global demand. Further reductions in OPEC+ oil output would prove to be bullish for crude prices.

Notably, the International Energy Agency (IEA) raised its forecast for global oil demand by 200,000 bpd to 102 million bpd, noting that China’s recovery after the lifting of COVID-19 curbs had surpassed expectations with demand reaching a record 16 million bpd in March. The world’s top oil importer is set to account for nearly 60 per cent of global demand growth in 2023, offsetting, along with India and the Middle East, sluggish demand in developed countries.

“The current market pessimism, however, stands in stark contrast to the tighter market balances we anticipate in the second half of the year, when demand is expected to eclipse supply by almost 2 million bpd,” said the Paris-based agency gathering of the 31 mostly industrialised countries and much of the European Union (EU).

OPEC+, which includes Saudi Arabia and Russia, pumps around 40 per cent of the world’s total crude and its policy decisions tend to impact oil prices and its movements. “No one wants to be short crude going into a weekend OPEC+ meeting. … Traders should never underestimate what the Saudis will do and leverage during OPEC+ meetings,” Edward Moya, senior market analyst at data and analytics firm OANDA told Reuters.

However, analysts from banks including HSBC and Goldman Sachs indicated that further output cuts are unlikely and that the bloc would adopt a “wait and see” approach.

Updated: 03 Jun 2023, 10:39 PM IST