Oil prices volatile on US debt fears

Oil prices were volatile on Monday, sliding in early trading but rallying later in the day, with WTI price rising above $72.1 per barrel. If the WTI price declines, it may encounter support near $69.4 per barrel, while resistance may be found near $73.6 per barrel.

Oil prices have been under pressure, as mounting economic risks reduce the oil demand outlook. Recession concerns run high and aggressive rate hikes stifle economic activity, putting a lid on oil prices. The potential of a banking sector meltdown has also reduced the oil demand outlook. 

US Treasury Secretary Janet Yellen has warned that the office would not meet all US government obligations by June 1. The ongoing debate around the US debt ceiling is causing economic uncertainty, pushing oil prices down. Last week, however, House Speaker McCarthy and President Biden started talks on the debt ceiling. Talks between the two officials resumed on Monday, and US President Biden stated that he is optimistic they will make some progress. Expectations that US officials will agree on a new debt ceiling, alleviated fears of a US debt default, providing support for oil prices on Monday.

Oil prices are boosted by diminishing rate hike expectations. US Federal Reserve Chair Jerome Powell indicated that the US Central Bank may pivot towards a more dovish direction. The Federal Reserve raised interest rates by 25 basis points at its latest monetary policy meeting, bringing the benchmark interest rate to a 16-year high target range of 5.00% to 5.25%. The US Central Bank has signaled that its hawkish policy is coming to an end, providing support for oil prices. As major central banks are winding down their hiking cycles, the oil demand outlook rises.

However, oil prices are supported by limited supply, as OPEC+ producers recently decided to reduce output by 1.1 million barrels per day to offset the drop in oil prices from the global banking crisis. 

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Written by:
Myrsini Giannouli

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