Oil Prices Slip As Fears Of A U.S. Default Return

• Crude oil prices retreated in Asian trade on Tuesday, with WTI falling toward $72 and Brent trading below $76.50.
• Reports have emerged that Republican hardliners in Congress might derail the debt ceiling deal that President Biden and Kevin McCarthy had agreed upon.
• Uncertainty over a debt ceiling deal combined with mixed messages from OPEC+ has set oil markets on edge this week.

Crude oil prices retreated today in Asian trade following modest gains made on Monday on the news that President Biden and House Speaker and top Republican Kevin McCarthy had sealed a deal to raise the debt ceiling.

However, reports have now emerged that some Republican hardliners in Congress will not support a deal that involves a higher debt ceiling, putting the successful passing of the deal in peril, Reuters has reported.

At the time of writing, Brent crude was trading at close to $76.50 a barrel, while West Texas Intermediate was changing hands for a little over $72 per barrel. Both were down modestly from the start of trade today.

Debt ceiling negotiations have been a major factor for oil price movements in the past couple of weeks, mostly because of the apparent inability of Republicans and Democrats in Congress to strike any semblance of an agreement on how to increase the federal government’s borrowing power.

According to early reports on the tentative deal between Biden and McCarthy, it involves flat spending over the next two years and the recycling of unused Covid funds.

However, it appears that this is not good enough for some Republicans both in Congress and outside it.

"It's not a good deal. Some $4 trillion in debt for - at best - a two-year spending freeze and no serious substantive policy reforms," Rep. Chip Roy said on Twitter.

"After this deal, our country will still be careening toward bankruptcy," Florida Governor Ron DeSantis told Fox News.

This means passing the deal would be tough but hardly impossible: history suggests Democrats and Republicans have always been able to set aside their differences in the name of avoiding a debt default.

Besides the debt ceiling troubles in the U.S., another factor that has been pressuring prices is potentially conflicting messages from the two leaders of OPEC+, Saudi Arabia and Russia.

While Saudi Arabia, through Energy Minister Abdulaziz bin Salman, has supposedly suggested further output cuts, Russia, via Deputy Prime Minister Alexander Novak, has said there was no need for further cuts.

By Irina Slav for Oilprice.com

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