Oil prices experienced a slight decline on Tuesday as investors grew increasingly concerned about the potential risk of a U.S. debt default.
This apprehension dampened risk appetite in the market. However, the tighter market conditions resulting from a seasonal rise in gasoline demand and supply cuts implemented by OPEC+ producers provided some support to oil prices.
The ongoing negotiations between President Joe Biden and House Speaker Kevin McCarthy, with just 10 days remaining before a possible default, kept market participants on edge. Despite the uncertainty, industry experts anticipate that macro sentiment will continue to be the primary driver influencing oil prices in the foreseeable future.
Brent crude, the international benchmark, fell by 26 cents, or 0.3%, to reach $75.73 a barrel, while U.S. West Texas Intermediate (WTI) crude slipped by 24 cents, or 0.3%, settling at $71.81.
Tamas Varga, an oil broker from PVM, described the ongoing negotiations as a “tug-of-war” at the negotiating tables, indicating that no significant breakthrough had been achieved thus far. This impasse contributed to the prevailing market volatility.
Oil prices had experienced an upswing on Monday, benefiting from a 2.8% increase in U.S. gasoline futures ahead of the Memorial Day holiday, which traditionally marks the start of the peak summer demand season. This surge in gasoline futures reflects the anticipation of increased demand for transportation fuels during the holiday period.
Hiroyuki Kikukawa, the president of NS Trading, a unit of Nissan Securities, pointed out that oil prices were consolidating their lower levels, primarily driven by the expected rise in U.S. gasoline demand beginning next week.
The voluntary production cuts initiated by several members of the Organization of the Petroleum Exporting Countries (OPEC) and their allies, collectively known as OPEC+, also played a role in tightening the global supply of oil.
Russia, a key player in the OPEC+ alliance, joined forces with other producing nations to curb output. These coordinated efforts were intended to stabilize oil prices and prevent oversupply in the market. As a result, the impact of reduced production is expected to bolster oil prices in the face of ongoing geopolitical and economic uncertainties.
Apart from seasonal factors and production cuts, other developments are also influencing the oil market. Analysts are closely watching the latest U.S. inventory data, which is expected to show a small increase in crude stocks. The American Petroleum Institute is set to release its first report of the week at 2030 GMT, shedding light on the inventory levels. Furthermore, planned U.S. purchases to refill the Strategic Petroleum Reserve have gained attention. This move follows last year’s record sales as part of a strategy to stabilize prices in response to Russia’s invasion of Ukraine.
