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Oil Prices On The Bring Of Surging As Debt Default Looms

Debt ceiling talks between the White House and Congress as the stock market plunges and the oil prices increases.

The prices of oil are on the brink of increase as the debt ceiling talks have stalled between Congress and the White House.

Oil is on track to register first weekly gains in over a month as market participants remain optimistic Congress will find a resolution to the impending debt limit impasse.

The price of gas and diesel is displayed on a pump at a gas station on January 23, 2023, in Miami, Florida. Data from AAA shows that nationally gasoline prices have risen 32.7 cents over the last month as crude oil prices rise. JOE RAEDLE/BENZINGA

West Texas Intermediate futures maturing in July are trading higher by close to 1% at $72.62 per barrel during Friday afternoon Asian trading session. Brent futures expiring in July registered similar gains to trade at $76.58 per barrel.

U.S. oil inventories took a dip as demand increased for the first time since 2021 surrounding the debt ceiling talks. Gas prices have settled for more than $2 per gallon as debt ceiling talks have yet to be resolved in Washington.

President Joe Biden has reportedly urged his negotiators to keep following a debt-limit deal after House Speaker Kevin McCarthy indicated both parties may reach an agreement as soon as this weekend. Crude purchased by some Asian refiners also added to the bullish sentiment, reported Bloomberg.

McCarthy and Biden administration aides paused the negotiations as the lead negotiator for McCarthy walked out of the negotiating room due to disagreements on the debt ceiling.

The United States Brent Oil Fund (NYSE:BNO) closed 1.12% lower on Thursday while the Vanguard Energy Index Fund ETF (NYSE:VDE) gained 0.78%.

Yeap Jun Rong, a market strategist for IG Asia Pte. told Bloomberg that oil prices seem to be taking its cue from the broader risk environment. Optimism about debt ceiling talks, the upcoming U.S. summer driving season and the nation’s plan to replenish its Strategic Petroleum Reserve (SPR) could lend support to futures, he added.

However, fears of a recession – a major factor driving oil demand — are still prevalent among market participants with contrarian opinions on the Federal Reserve’s future policy path doing rounds. For instance, Johanna Chua, chief APAC economist at Citigroup Global Markets, reportedly said inflation is likely to be quite persistent, and the Fed may go for two more rate hikes in coming times.

At the same time, JPMorgan Asset Management is of the view that a recession in the U.S. is a virtual certainty and the central bank is likely to cut interest rates by the third quarter as growth fizzles out.

“Crude needs a clear signal that the US economy will avoid economic catastrophe or that China’s recovery is picking up steam,” said Edward Moya, an analyst at OANDA.

Biden is expected to return to the U.S. on Sunday as the clock ticks towards the default date. Economists have predicted that the recession is coming in the second half of the year.


Produced in association with Benzinga

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