Oil Prices Rebound as Concerns Over U.S. Debt Default Fade

Global oil prices rebounded on Friday as concerns over a potential U.S. debt default gradually dissipated and investors’ sentiment grew.

Brent crude oil, the international benchmark for Nigerian crude oil, appreciated by 1.0%, or 73 cents to $76.59 per barrel while the U.S. West Texas Intermediate crude oil gained 0.9% or  62 cents to $72.48.

The gain in oil prices was a result of the fading apprehension surrounding the U.S. debt as global investors appeared to be gradually pricing out the risks associated with the U.S. debt default, resulting in a more optimistic and risk-on environment.

This newfound confidence is responsible for the increase in demand for the commodity as investors were capitalising on lower prices, especially in the Brent market.

“Markets have been steadily factoring out the risks of a U.S. debt default, leading to a more favorable environment for oil prices. The shift in sentiment encourages investors to reevaluate previous oversold conditions and consider the potential for an upward move”,  Yeap Jun Rong, a market strategist at IG stated.

Despite the overall positive outlook, the market sentiment remains somewhat mixed. Investors are grappling with the potential impact of inflation data, which could potentially trigger further interest rate hikes by central banks worldwide.

Two Federal Reserve policymakers have said the U.S. inflation has not sufficiently cooled to justify pausing the ongoing interest-rate hike, suggesting a possible weakness in U.S. demand for the commodity.

However, analysts from National Australia Bank emphasized that there are mitigating factors that may support oil prices. They anticipate that China’s demand for oil will continue to improve throughout 2023, offsetting any slowdown in demand from OECD countries.