Oil Prices Hold Steady as Debt Ceiling Talks Weigh on Optimism, Supply Concerns Persist

Oil prices remained stable on Monday amid ongoing caution surrounding U.S. debt ceiling negotiations, dampening optimism for future demand despite lower supplies from Canada and OPEC+ producers.

Brent crude oil, the international benchmark for Nigerian oil, inched up by 0.2%, or 13 cents to $75.71 per barrel at 11:00 am. Meanwhile, the more actively traded U.S. West Texas Intermediate (WTI) crude for July delivery rose by 0.20%, or 12 cents, to $71.81.

However, the June WTI contract, set to expire later in the day, experienced a slight dip of 10 cents, closing at $71.45 per barrel.

Concerns over a potential default on U.S. debt prompted the resumption of talks in Washington on Monday. The prospect of a default and its potential consequences, such as an economic downturn and reduced fuel demand, continued to unsettle the markets.

While the International Energy Agency (IEA) warned of an impending supply shortage in the second half of the year, with demand expected to surpass supply by nearly 2 million barrels per day (bpd), the Paris-based agency stated this in its latest monthly report.

Vandana Hari, founder of oil market analysis provider Vanda Insights, anticipates increased volatility in the days ahead and a subsequent uptick in crude prices once a deal to raise the debt ceiling is reached.

Last week, both oil benchmarks experienced a 2% gain, marking their first weekly increase in five weeks. This gain was driven by wildfires that disrupted significant crude supply in Alberta, Canada.

The impact of voluntary production cuts implemented by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia (known as OPEC+), is also being felt following their recent enforcement.

According to JP Morgan, total exports of crude and oil products from the OPEC+ group decreased by 1.7 million bpd by May 16. The report also predicts a likely decline in Russian oil exports by the end of May.

During their annual leaders’ meeting, the Group of Seven (G7) nations pledged to intensify efforts to address Russia’s circumvention of price caps on its oil and fuel exports. However, specific details were not disclosed, and the overall impact on crude and oil product supply remains uncertain, as stated by IEA Executive Director Fatih Birol in an interview with Reuters at the G7 summit.