(Montel) Oil eases ahead of Opec+ talks, US debt ceiling vote

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Oil prices eased early on Wednesday to near a recent four-week low as investors remained cautious ahead of an Opec+ meeting and a vote on a US debt ceiling deal.

The front-month contract for Brent crude North Sea oil traded down USD 0.19 at USD 73.35/bbl on Ice Futures, while the US WTI equivalent was USD 0.16 lower at USD 69.30/bbl. Both benchmarks were near their intraday lows reached on Tuesday – USD 73.20/bbl and USD 69.03/bbl, which were the lowest levels since early May.

A joint technical meeting of Opec and its allies including Russia is scheduled on 4 June. Opec+ surprised the market early in April with voluntary cuts of 1.66m bbl/day, deepening the cuts announced back in October.

However, analysts at ANZ Bank said the market is “getting increasingly frustrated with Russia’s promise to reduce supply”.

“Crude oil exports are edging lower but still show no signs of the 0.5m bbl/day cut it insisted the country is making. This comes ahead of its meeting with fellow members of the Opec+ alliance to review its production agreement.”

A recent warning from the energy minister of Saudi Arabia – Opec’s de facto leader – for short sellers to “watch out” had buoyed oil prices last week as it suggested more output curbs could be on the way.

“Given the history of surprise cuts, the producer cartel can’t be trusted merely on announcements,” said analysts at Phillip Nova.

Debt ceiling vote

Over the weekend, US President Joe Biden sealed an agreement with House Speaker Kevin McCarthy to suspend the USD 31.4 trillion debt ceiling through 1 January 2025. Investors are now waiting for the deal to be voted in Congress later today.

“Apart from lingering uncertainty given that the bill will need bipartisan support to pass (expected), the market’s hesitancy could also reflect a growing sense that the [US central bank] may be compelled to raise interest rates when it meets on 13/14 June,” ANZ Bank said.

Demand off, supply on

Meanwhile, “signs of weak underlying demand saw further downward pressure on commodity markets,” the ANZ Bank analysts noted.

“Easing supply-side issues also weighed on sentiment,” they added, citing several oil sand producers likely to bring back the output curtailed by recent wildfires in Canada.

The weakness in oil prices also reflects “a gloomy economic outlook, typically of China,” CMC Markets stated as factory activity of the world’s second-largest oil consumer on Tuesday fell to a five-month low in May, denting hopes for a recovery in demand.