By Adedapo Adesanya
Oil prices edged higher in choppy trading on Monday as markets weighed a tentative debt ceiling deal in the United States that would avert a default by the world’s top oil consumer.
Brent crude futures grew by 12 cents or 0.2 per cent to $77.07 a barrel, while the US West Texas Intermediate crude was up by 25 cents or 0.3 per cent to $72.92 a barrel.
Both benchmarks flip-flopped between positive and negative territories, as trade was subdued on Monday because of the public holidays in the UK and the US. Also, Nigeria, an oil-producing country, observed a work-free day yesterday for the swearing-in of its 16th president, Mr Bola Tinubu.
The US President, Mr Joe Biden and House of Representatives Speaker, Mr Kevin McCarthy, over the weekend, forged an agreement to suspend the $31.4 trillion debt ceiling and cap government spending for the next two years.
The deal, if approved, will prevent the US government from defaulting on its debt and comes after weeks of heated negotiations between Biden and House Republicans.
It still needs to pass through Congress, which doesn’t entirely see eye to eye on this, before June 5, when the US Treasury says it would run short of money to cover all of its obligations.
The agreement would suspend the debt limit through January 1 of 2025, cap spending in the 2024 and 2025 budgets, claw back unused COVID funds, speed up the permitting process for some energy projects and include extra work requirements for food aid programs for poor Americans.
The market is also looking at expectations that the US Federal Reserve will raise rates by another 25 basis points at its June 13-14 meeting.
At its last policy meeting on May 2-3, the Federal Reserve signalled it was open to pausing its most aggressive rate-hiking cycle since the early 1980s in June.
Support also came from a stronger US Dollar as the debt ceiling deal lifted risk appetite in world markets and dented the greenback’s safe-haven appeal.
A lower greenback helps demand for oil, which is priced in Dollars.
The Organisation of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, known as OPEC+, are due to meet on June 4.
Last week, Saudi Energy Minister, Prince Abdulaziz bin Salman, warned short-sellers betting that oil prices will fall to “watch out,” in a possible signal that OPEC+ may further cut output.
However, comments from Russian oil officials and sources, including Deputy Prime Minister, Mr Alexander Novak, indicate the world’s third-largest oil producer is leaning toward leaving output unchanged.
Modupe Gbadeyanka