Crude Oil Prices Slide Lower as Debt Ceiling and OPEC Deal Approach
May 30, 2023
Crude oil prices (/CL) were trading approximately 4% lower on Tuesday afternoon, with uncertainty regarding the U.S. debt default. This could potentially cause chaos for the global economy.
Over the weekend, House Speaker Kevin McCarthy and President Biden agreed to a provisional agreement of suspending the debt limit for a two-year time frame. Nevertheless, this measure still needs to be authorized by Congress, and certain obstacles need to be accomplished first.
The House Rules Committee is the first of these hurdles and is due to meet today at 1900 GMT to vote. If this procedural step is successful, there may be a reducement in the market's uncertainty and a possible recovery in oil prices.
The Organization of the Petroleum Exporting Countries (OPEC) on Sunday poses another threat to global oil markets. The cartel’s member states and Russia will debate further production cuts in Vienna on June 4.
Back in April, OPEC committed to reducing the amount of oil collectively produced by the group by about 1.16 million barrels per day (bpd). Still, oil prices remain relatively subdued amid an uncertain economic backdrop.
According to GasBuddy’s Patrick De Haan, citing GasBuddy data, U.S. gasoline demand over the Memorial Day holiday fell 1.1% from a year ago. While Russia is reportedly happy with current prices, that doesn’t rule out another surprise cut from the group.
Outside of the U.S. debt talks and the upcoming OPEC meeting, oil markets have a lot of data to digest. To start, weekly U.S. inventory figures from the American Petroleum Institute (API) and the Energy Information Administration are due Tuesday and Wednesday, respectively.
On Friday, the U.S. non-farm payrolls report (NFP) is set to cross the wires for May. Analysts expect a headline print of 190k jobs added and a small uptick in the unemployment rate from 3.4% to 3.5%. A worse-than-expected print on either headline figure would likely weigh on demand-sensitive oil prices.
Since April, when prices rose above $83 a barrel, prices have moved sharply lower, although a steady climb in May looked promising until the 50-Day Simple Moving Average capped upside. Prices are now at key levels, tackling the 78.6% Fibonacci retracement level from the March to April move. A move lower could see a move to retest the lows set in March and early May.
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