Oil prices increased on Tuesday as investors anticipated a tighter market driven by higher gasoline demand and supply cuts from OPEC+ countries. However, concerns about the risk of a U.S. debt default limited the extent of the price increase.
Brent crude futures rose by 35 cents, or 0.46%, to reach $76.34 per barrel by 0630 GMT, while U.S. West Texas Intermediate (WTI) crude stood at $72.41 per barrel, showing a gain of 36 cents, or 0.50%.
Following a 0.5% increase in Brent on Monday, prices continued to rise for a second consecutive day. WTI also saw a gain of 0.6%. Furthermore, U.S. gasoline futures surged by 2.8% ahead of the Memorial Day holiday on May 29, which typically marks the beginning of the peak summer fuel demand period.
“Oil prices are consolidating their bottoms, helped by a seasonal increase in U.S. gasoline demand from next week, production cuts by OPEC+ from this month and planned U.S. purchases to refill the Strategic Petroleum Reserve (SPR),” said the president of NS Trading, a unit of Nissan Securities, Hiroyuki Kikukawa.
The U.S. Department of Energy recently announced its plan to acquire 3 million barrels of crude oil for delivery in August to replenish the SPR.
Oil markets are anticipated to remain tight as a result of voluntary production curbs implemented this month by the Organization of the Petroleum Exporting Countries and its partners, including Russia, known as OPEC+.
Goldman Sachs analysts said on Monday that they “expect sustained (oil supply) deficits from June as OPEC+ production cuts fully realize and demand rises further.”
However, investors remain concerned about the ongoing negotiations to raise the U.S. debt limit, the U.S. being the largest oil consumer globally. A potential U.S. default could result in financial market turmoil and a surge in interest rates, affecting both domestic and global fuel demand growth.
President Joe Biden and House Speaker Kevin McCarthy concluded discussions on Monday without reaching an agreement on raising the U.S. government’s $31.4 trillion debt ceiling. They will continue negotiations with just 10 days remaining before a possible default.
“The central focus for the broader risk environment has been revolving around the U.S. debt ceiling talks, and while that is keeping a cautious lid on upside for now, a positive up move on any eventual resolution on that front may remain on the table,” said a market strategist at IG in Singapore, Jun Rong Yeap.