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Oil rebounds on fading risk of U.S. debt default
Global Banking & Finance Review®
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By Noah Browning
LONDON (Reuters) -Oil prices rebounded on Friday from losses of more than 1% the previous day as investors turned cautiously optimistic over the fading risk of a U.S. debt default.
Brent futures rose 69 cents, or 0.9%, to $76.55 a barrel by 0923 GMT, while West Texas Intermediate U.S. crude climbed 56 cents, or 0.8%, to $72.42.
“I think markets have been pricing out the risks of a U.S. debt default, which translates to a more risk-on environment and some dip-buying in Brent crude from previous oversold conditions,” said Yeap Jun Rong, a market strategist at IG.
Earlier this week, U.S. President Joe Biden and Speaker of the House of Representatives Kevin McCarthy reiterated their aim to strike a deal to raise the $31.4 trillion federal debt ceiling, agreeing to talk as soon as Sunday.
“Traders were reluctant to go into the weekend short, on the off chance that an agreement to raise the U.S. government’s debt ceiling is struck over the weekend,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.
Sentiment remains mixed as investors juggle optimism over avoidance of a U.S. debt default with inflation data that could portend more interest rate hikes from global central banks.
U.S. inflation does not seem to be cooling fast enough to allow the Federal Reserve to pause its interest-rate hike campaign, according to two Fed policymakers.
The potential for additional rate hikes increases concerns about demand weakness in the United States, said analysts from National Australia Bank.
The analysts said, however, there is upside to prices as they expect China’s demand to continue improving throughout 2023, which should offset the slowdown in OECD demand.
China’s oil refinery throughput in April rose 18.9% from a year earlier to the second-highest level on record, data showed earlier this week.
Chinese refiners maintained high runs to meet recovering domestic fuel demand and build stockpiles ahead of the summer travel season.
(Additional reporting by Jeslyn Lerh in Singapore; editing by Tom Hogue and Jason Neely)
A debt default occurs when a borrower fails to meet the legal obligations of a loan, which can lead to severe financial consequences for both the borrower and the lender.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is often measured by the Consumer Price Index (CPI).
Brent futures are contracts to buy or sell crude oil at a predetermined price on a specified date, based on the price of Brent crude oil, a major trading classification of crude oil.
West Texas Intermediate (WTI) is a grade of crude oil used as a benchmark in oil pricing, primarily produced in the United States and known for its light and sweet characteristics.
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