Oil Market Plunges 4% on Fresh US Debt Pact Fears

By Adedapo Adesanya

The oil market fell more than 4 per cent on Tuesday on fresh concerns about whether the US Congress will pass the much talked about debt ceiling pact.

Brent crude futures depreciated by $3.53 or 4.6 per cent to close at $73.54 a barrel, as the US West Texas Intermediate (WTI) crude futures went down by $3.21 or 4.4 per cent to $69.28 per barrel.

Republican lawmakers said they might oppose a deal to raise the debt ceiling in the US, the world’s biggest oil user.

However, Democratic President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy remained optimistic the deal would pass.

Mr Biden and Mr McCarthy forged an agreement over the weekend that must pass a divided US Congress before June 5, the day the Treasury Department has said the country will not be able to meet its financial obligations, which could disrupt financial markets.

Mr McCarthy on Tuesday urged members of his party to support the deal.

The 99-page bill would suspend the debt limit through January 1, 2025, allowing lawmakers to set aside the politically risky issue until after the November 2024 presidential election.

It would also cap some government spending over the next two years.

The debt deadline nearly coincides with the June 4 meeting of the Organization of the Petroleum Exporting Countries and allies, including Russia, known as OPEC+.

Mixed messages from major producers clouded the supply outlook ahead of the OPEC+ meeting this weekend.

Saudi Arabian Energy Minister Abdulaziz bin Salman last week warned short-sellers betting that oil prices will fall to “watch out” in a possible signal that OPEC+ may cut output.

However, comments from Russian oil officials and sources, including Deputy Prime Minister Alexander Novak, indicate the world’s third-largest oil producer is leaning toward leaving output unchanged.

In April, Saudi Arabia and other members of OPEC+ announced further oil output cuts of around 1.16 million barrels per day, bringing the total volume of cuts by OPEC+ to 3.66 million barrels per day.

The market will be looking at data from the US and China.

Chinese manufacturing and service sector data out later this week will also be scrutinised for cues on the fuel demand recovery in the world’s top oil importer while delayed oil stockpile data will be released a day later than usual.