Oil prices dropped by nearly 2% on May 30 amid concerns about the US debt ceiling agreement, which dampened market sentiment and led to a murky supply outlook ahead of the upcoming meeting of major oil producers.

 

Brent crude futures fell 1.8% to $75.71 a barrel, while US West Texas Intermediate (WTI) crude declined 1.6% to $71.48. The absence of a settlement on Monday due to a public holiday in the US further contributed to the decline.

Some conservative Republican lawmakers opposed a deal raising the US debt ceiling, causing uncertainty in the world’s largest oil-consuming country.

Democratic President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy remained optimistic that the deal would be approved. 

The agreement reached between Biden and McCarthy needs to pass through a divided US Congress by June 5 to prevent potential disruptions in financial markets.

The US debt deadline coincides with the June 4 meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+. The market is uncertain whether they will increase their production cuts in response to the recent drop in oil prices. 

Saudi Arabian Energy Minister Abdulaziz bin Salman warned short-sellers last week, suggesting a possible indication of OPEC+ considering output reductions.

Russian oil officials and sources, including Deputy Prime Minister Alexander Novak, have indicated that Russia, the world’s third-largest oil producer, is leaning towards maintaining current output levels. 

In April, OPEC+ members, including Saudi Arabia, announced additional production cuts totaling around 1.2 million barrels per day, resulting in a total reduction of 3.66 million.

Market participants are also closely monitoring Chinese manufacturing and service sector data, set to be released later this week, to gain insights into the recovery of fuel demand in the world’s top oil importer.