Crude ticks higher early Thu after US House passes debt bill - June 1, 2023

  • Crude futures changed direction and started trekking higher early Thursday in Asia on news that the US debt ceiling bill had been passed by the Republican-dominated House of Representatives in a vote late-Wednesday local time, clearing a major hurdle.
  • However, disappointing China manufacturing data for May and a sizeable weekly jump in US commercial oil stockpiles were exerting a downward pull on crude.
  • The financial markets were digesting the latest signals by Fed officials that the central bank is likely to hold rates steady at its June 13-14 meeting but that would not mean its current tightening cycle has peaked.



OPEC+ kerfuffle over, oil back under spell of US debt ceiling drama - May 26, 2023

For a second Friday in a row, we are starting by talking about the US debt ceiling drama. Another week of tough negotiations in Washington had narrowed the gap over the size of federal spending cuts, a key demand of the Republicans to agree to raising the government’s debt ceiling. But as one of the Republican negotiators said on Thursday, the final stretch involved the most sensitive and thorny issues.

But it is Memorial Day weekend in the US, and hopes for a deal being clinched in the coming hours were rising as we closed our weekly report. US stock market indexes were indicating a higher open, and crude futures had climbed by just over 1% in intraday trading.

The kerfuffle over contradictory signals on OPEC+ policy earlier in the week from Saudi Arabia and Russia, de facto leaders of the producers’ alliance, had died down, but not without exposing a serious fault line. We were on the right track in our Viewsletter last week to point out how difficult a production cut has become for Russia. And if Russia can’t or won’t cut what it has promised, why would the others? And if there is patchy compliance so far, what is the point of pledging further reductions?

Looking beyond a modest price bump from a US debt ceiling deal, we see limited headroom for crude in the coming weeks (a surprise OPEC+ cut excepted). As the Fed’s next policy meeting June 13-14 comes into view, the market is starting to accept the possibility of another 25 bps hike. Even if it’s a rate pause, more market participants are coming around to the idea that there could another hike down the line and the monetary policy is likely going to be “higher for longer”.

That view is a dampener for market mood and risk appetite. Sentiment is also souring on China, with economists trimming growth forecasts for the country after taking in its disappointing macro-economic data so far. That suggests mostly headwinds for crude.