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Oil dips as rate hike fears offset U.S. debt deal

ARATHY SOMASEKHAR REUTERS

HOUSTON — Oil prices slipped on Monday as worries over further interest rate hikes that could curb energy demand trumped a tentative U.S. debt ceiling deal, possibly averting a default in the world’s top oil consumer.

Brent crude futures slipped 46 cents, or 0.6 per cent, to $76.49 a barrel by 1450 GMT, while U.S. West Texas Intermediate crude was at $72.44 a barrel, down 24 cents, or 0.3 per cent.

Trade is expected to be subdued on Monday because of UK and U.S. public holidays.

“The euphoria of the debt deal is wearing off as concern mounts for another rate hike by the Fed in June,” brokerage Liquidity Energy LLC wrote in a note.

U.S. President Joe Biden and House of Representatives Speaker 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. Both leaders expressed confidence that members of the Democratic and Republican parties will vote to support the deal.

Still, analysts saw any boost in oil prices from the debt deal as short-lived, with earlier gains in the session now lost.

Markets are now pricing in a roughly 50-50 chance that the Fed raises rates by another 25 basis points at its June 13-14 meeting, up from an 8.3 per cent chance seen of an expected rate hike one month ago, according to CME’S Fedwatch Tool.

At its last policy meeting, on May 2-3, the Federal Reserve signaled that it was open to pausing its most aggressive rate-hiking cycle since the early 1980s at it June meeting.

“Higher U.S. rates are a headwind for crude oil demand,” IG Sydney-based analyst Tony Sycamore said.

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known as OPEC+, is due to meet on June 4.

Saudi energy minister Abdulaziz bin Salman warned short-sellers betting oil prices will fall to “watch out”, in a possible signal that OPEC+ may further cut output.

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2023-05-30T07:00:00.0000000Z

2023-05-30T07:00:00.0000000Z

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