HOUSTON (Reuters) – Oil prices fell on Monday as concerns about rising interest rates that could curb energy demand overshadowed a tentative U.S. debt ceiling agreement that would avoid defaulting on the world’s largest oil consumer.
Brent crude futures fell 23 cents, or 0.3%, to $76.72 a barrel by 1640 GMT, while US West Texas Intermediate crude settled at $72.67 a barrel.
Trade was expected to remain weak on Monday due to public holidays in the United Kingdom and the United States.
“Debt deal euphoria is fading as concern mounts of another Fed rate hike in June,” brokerage Liquidity Energy LLC wrote in a note.
US President Joe Biden and House Speaker Kevin McCarthy reached an agreement over the weekend to suspend the $31.4 trillion debt ceiling and limit government spending for the next two years. The two leaders expressed confidence that members of the Democratic and Republican parties would support the deal.
However, analysts saw any increase in oil prices from it as short-lived, with the loss of previous gains in the session.
Markets are now pricing in a roughly 50-50 chance that the Fed will raise rates by another 25 basis points at its June 13-14 meeting, up from an 8.3% chance projected a month ago, according to CME’s FedWatch tool.
At its latest policy meeting on May 2-3, the Fed signaled it was open to halting the most aggressive cycle of rate hikes since the early 1980s in June.
IG analyst Tony Sycamore said:
The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known as OPEC+, are due to meet on June 4.
Saudi Energy Minister Abdulaziz bin Salman warned short sellers who bet that oil prices will fall to “be careful,” in a possible sign that OPEC+ may cut production further.
However, statements by Russian oil officials and sources, including Deputy Prime Minister Alexander Novak, indicate that the world’s third largest oil producer is leaning towards leaving production unchanged.
“Traders are left scratching their heads as to what to expect,” said Craig Erlam, chief market analyst at OANDA.
“Maybe Saudi Arabia wants to keep traders on their toes, but making these comments and not following through could be seen as weak and see prices drift lower again,” Erlam said.
Additional reporting by Noah Browning in London, Florence Tan in Singapore, and Mohi Narayan in New Delhi. Editing by David Holmes, Leslie Adler and John Stonestreet
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