Early Gains Reversed Amid Debt Ceiling Impasse
The oil market faced a setback on Friday as crude prices gave up early gains following reports of a stalemate in the U.S. debt ceiling negotiations. However, despite the deadlock, the market ended the week positively as oil prices rose from gains made earlier in the week. This marked the first weekly advance in five weeks.
Political Deadlock Over Raising the U.S. Debt Ceiling
President Joe Biden and his primary Republican adversary in Congress, Kevin McCarthy, earlier indicated that a deal to lift the $31.4 trillion U.S. debt ceiling was within reach. The leaders expected an agreement as early as Sunday, aiming to avert a federal default by June 1. However, recent media reports paint a bleaker picture, with headlines suggesting that talks have stagnated.
Crude Prices Impacted Amid Ongoing Negotiations
By Friday afternoon, the New York-traded West Texas Intermediate (WTI) crude experienced a drop of 33 cents, settling at $71.53 per barrel. However, the week saw an overall rise of 2.2% despite a 15% cumulative fall in the previous four weeks. The London-traded Brent crude, the global oil benchmark, slid 22 cents to $75.64. Nevertheless, Brent saw a 2% weekly increase after four weeks of consecutive losses.
Market Hopes Pinned on Debt Ceiling Talks Resolution
On Friday, WTI and Brent witnessed a rally exceeding $1 based on hopeful progress in the debt ceiling negotiations. Vandana Hari, the founder of Vanda Insights, suggested that traders were hesitant to short-sell over the weekend due to the possibility of a breakthrough in the debt talks. Craig Erlam, an analyst at OANDA, echoed this sentiment, maintaining that a U.S. debt default was unlikely.
Weaker Dollar Provides Temporary Boost to Oil Market
The oil market found additional support from a weakening dollar, making dollar-denominated commodities like crude more affordable to other currency holders. This happened even as speculators anticipated the Federal Reserve to maintain its rate hike streak during the June 14 meeting. However, the uncertain outcome of the U.S. debt ceiling negotiations offset these gains.
