Crude oil prices look set to record their first weekly gain since mid-April as sentiment about future demand improves amid signs there may be progress on the debt ceiling negotiations in Congress.
On Thursday, President Biden and House Speaker Kevin McCarthy said they would negotiate directly on lifting the debt ceiling, sparking hopes that a default would be avoided.
"We're going to come together because there's no alternative," President Biden said, as quoted by Reuters. "To be clear, this negotiation is about the outlines of the budget, not about the whether or not we're going to (pay our debts). The leaders (of Congress) have all agreed: We will not default. Every leader has said that."
As a result, oil prices inched up, with West Texas Intermediate gaining some 3% since the start of the week, according to Bloomberg.
At the time of writing, WTI was trading at a little over $72 per barrel, while Brent crude was changing hands at around $76.50 per barrel. Both remain down 10% since the start of the year, however.
In addition to debt ceiling optimism, prices got some support from the fact that driving season is around the corner with demand expected to pick up in accordance with usual seasonal variation. Some additional support was also provided by the Department of Energy when it announced it planned to buy 3 million barrels of oil for the strategic petroleum reserve, an IG analyst told Bloomberg.
On the flip side, U.S. leading economic indicators suggested the economy is gathering pace, which in turn reignited fears of more rate hikes as it pushed the greenback to the highest in two months.
"Good news for the economy is now bad news for the crude demand outlook as economic resilience will force the Fed to kill the economy," OANDA analyst Edward Moya told Reuters.
By Irina Slav for Oilprice.com
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Once this happens, oil prices will recoup all their recent losses and resume their surge towards 90 dollars a barrel sometime in 2023.
Dr Mamdouh G Salameh
International oil economist
Global energy expert