Oil posts second weekly gain amid US debt ceiling talks and Opec+ uncertainty

US President Joe Biden expresses optimism over the negotiations, pushing prices higher

Gas is flared at an oil complex in the northern Iraqi province of Kirkuk. AFP
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Oil prices have posted their second weekly gain as investors keenly monitor US debt ceiling talks and the next moves by the Opec+ alliance.

Brent, the benchmark for two thirds of the world’s oil, settled 0.9 per cent higher at $76.95 a barrel at the close of trading on Friday, while West Texas Intermediate, the gauge that tracks US crude, was up 1.17 per cent at $72.67 a barrel.

“Debt deal negotiations appear to be heading in the right direction but talks could easily fall apart as the far wings of both parties will need to make concessions,” said Ed Moya, a senior market analyst at Oanda.

The US is days away from a potential debt default, which would wreak havoc on consumers and the American economy, as well as send shock waves across the entire global financial system.

US President Joe Biden's administration and Republicans are still tussling over whether to raise the $31.4 trillion federal debt ceiling, with each side describing another's proposals as too extreme.

However, Mr Biden expressed optimism over the negotiations on Friday and said things were “looking good, very optimistic”.

“I’m hopeful we’ll know by tonight whether we’re going to be able to have a deal,” he said.

Futures were down earlier on a strong dollar and as Russia said it expected no further supply cuts.

“The coming week could deliver a make-or-break moment for oil as we will see if Chinese manufacturing is rebounding, if the US labour market is reading to soften [and] how oil giants Exxon and Chevron address climate ambitions at their AGMs [annual general meetings],” Mr Moya said.

Russian Deputy Prime Minister Alexander Novak said he expected no new steps from the Opec+ group of 23 oil-producing countries at its meeting next week, Reuters reported on Thursday, citing his interview with Russian daily Izvestia.

“I don't think that there will be any new steps because just a month ago certain decisions were made regarding the voluntary reduction of oil production by some countries due to the fact that we saw the slow pace of global economic recovery,” Mr Novak was quoted as saying.

This came after Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman told oil market short sellers to “watch out” earlier this week, which was seen by some traders as a signal for further output reductions.

On April 2, some Opec+ members – Saudi Arabia, the UAE, Iraq, Kuwait, Oman and Algeria – announced voluntary production cuts of 1.16 million barrels per day.

Brent has lost more than 11 per cent of its value this year amid demand concerns.

“Markets remain on edge, with no debt ceiling deal yet forthcoming. But still the dollar managed to gain against peers,” said Edward Bell, senior director of market economics at Emirates NBD.

The US Dollar Index, a measure of the value of the greenback against a weighted basket of major currencies, has gained about 1 per cent over the past week.

A stronger dollar makes oil more expensive for holders of other currencies, hurting demand.

Crude demand is expected to rise in the second half of 2023, driven by higher consumption in Asia.

Last week, the International Energy Agency raised its 2023 global oil demand estimates and said the current pessimism in the market was in “stark contrast” to the agency’s expectations of a tighter market in the second half of the year.

The agency now expects global crude demand to rise by 2.2 million bpd in 2023, an increase of 200,000 bpd from its April forecast.

Updated: May 28, 2023, 3:42 AM