Oil prices dip as interest rate fears outweigh US debt relief

Oil prices dipped yesterday over concerns of a possible interest rate hike that could have a dampening impact on crude demand.

The fears over the Fed further tightening the monetary policy increased a day after a tentative agreement was reached in the US to raise the nation’s debt ceiling following a month-long stalemate.

The deal potentially averts a financial crisis in the world’s largest economy and biggest crude oil consumer.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.47 per cent lower at $76.58 a barrel at 7.25pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 0.19 per cent at $72.53.

US President Joe Biden and senior Republican official Kevin McCarthy reached a provisional agreement on Saturday to suspend the federal government’s $31.4 trillion debt ceiling. Congress must now approve a package that includes spending cuts to avert a disastrous default after the White House agreement was reached “in principle”.

“The prospect of a positive resolution to the debt ceiling fight in the US should help to spur on some risk appetite while markets will be looking ahead to the next Opec+ meeting in early June,” said Daniel Richards, Mena economist at Emirates NBD. “The meeting is likely to be live as Saudi Arabia may lean towards supporting another output cut or, at least, spreading the cut across all members of the alliance.”

The oil producer’s group will meet on Sunday as crude prices trade below $80 a barrel despite the announcement of an output cut by some members last month.

Brent has lost about 10 per cent of its value so far this year as weak economic growth in the US and China weigh on the outlook for fuel demand.